“Someone’s sitting in the shade today because someone planted a tree a long time ago.” – Warren Buffett

This analogy speaks volumes about saving and investing; specifically, the work, tenacity, and patience required over decades to reach long-term goals years down the road.  For young adults just entering the workforce, implementing a savings strategy may seem overwhelming when juggling student loans, buying a first home, or getting married.  Just how much savings is enough?

The answer to this question is as individual as the person, but here are some general guidelines.  I recommend applying the 50/30/20 rule to household income.  Divide your income into 3 different “buckets” like this.

  • 50% for necessities such as rent or mortgage, utilities, and groceries
  • 30% for discretionary items such as entertainment, dining out, or travel
  • 20% for savings and investing

For someone earning $50,000, that break down like this:  $25,000 spent on necessities, $15,000 spent on discretionary items, and $10,000 saved or invested.  If you have trouble reaching that 20% savings goal, make sure you save something.  No matter how small that amount is, those pennies saved today lead to dollars in retirement.

That savings and investing bucket can be comprised of different types of accounts.  You may have a retirement plan at work that you contribute to each paycheck; you may have an emergency savings fund that you are trying to build to cover unexpected expenses; you may have a Roth IRA account that you invest in each month; and you may have another savings account accumulating money for things like a down payment on a house.  The point is to start saving now for your future and to make it a habit.  Then, be diligent and patient.

The earlier you start saving, the better financial foundation you’ll be creating for yourself.  For help with developing savings plans or planning for retirement, contact Hovis & Associates for an appointment.