Key Takeaways:
- Setting aside 10% of your gross monthly income is an excellent way to build your savings.
- Accounts with compounding interest help your savings grow over time.
- The best time to start saving was yesterday, but starting today is the second best time.
The 10% rule is a savings tip that suggests you set aside 10% of your gross monthly income for retirement or emergencies. If you still need to start a savings account, this is a great way to build up your savings.
You should create a monthly budget before starting your savings journey. Starting a monthly budget will help determine if you can afford to put away 10% of your gross monthly income. Adjusting to a budget might take some time, but it’ll be worth it.
Don’t worry; you don’t have to come up with a budget on your own. You can use our practical budgeting template to help you get started.
If you have a lower monthly income, don’t let that discourage you from saving. If you are stretching your budget too thin to put away 10%, try starting smaller and building up to 10%. Start with 4% and work your way to 10%. Save where you can and be mindful of your budget.
Remember that your gross monthly income is the money you make before taxes, insurance, and other deductions.
How the 10% Rule Helps you
What can you use your savings for? You can use it for emergencies, like unexpected car repairs or medical bills. You can save for a down payment on a house. And, of course, it’s always good to save for retirement.
The 10% rule helps you build a better habit of saving and be more prepared for unexpected expenses or long-term financial goals.
How the 10% Rule Works
Starting to save early is a great way to build your savings over time. For example, the median household income in the United States was $70,784 in 2021. If you saved 10% of that each month, you would have $7,000 saved in a year.
If you started using the 10% rule at age 25 and invested 10% of your monthly income in a retirement account, earning 5%. By the time you turned 65, you would have saved $280,000 and earned $1,152,663.63 in interest, resulting in a total of $1,432,663.63 in your retirement account.
An excellent way to set money aside each month while being mindful of your budget is by setting up regular automatic transfers into your savings account. Setting up automatic transfers makes savings simpler. Not having to transfer your 10% each month manually will keep you from forgetting or skipping moving money to your savings.
Where to Keep Your Savings
Now, where should you put that 10%? You can save it in a regular savings account, a high-yield savings account, or even a retirement account. But before you open any of these accounts, check the fees and minimum balances. Remember that having an account with compound interest can help you save even more over time.
Compound interest lets your money work hard for you by growing interest over time. Good examples of compounding interest accounts are certificates of deposits (CDs), savings accounts, interest bearing checking accounts, 401(k) accounts, and investment accounts. With compounding interest, the sooner you start, the better.
It’s important to remember to keep your retirement savings and emergency fund separate. There are better ideas than using your retirement savings for unexpected expenses. Instead, you can put your retirement savings into a long-term investment account like a 401(k). Just be sure to contribute enough to get your employer to match if they offer one. An emergency fund can be kept in a high-yield savings account, which earns interest and is readily available.
Final Thoughts
Yesterday was the best time to start savings, but today is the second-best time. To find more personal finance tips check out our website Personal Finance Archives – Texas Regional Bank. Please schedule an appointment today with one of our bankers to review our savings account options.
FAQs
The 10% rule is a savings tip that suggests you set aside 10% of your gross monthly income for retirement or emergencies. If you still need to start a savings account, this is a great way to build up your savings. You should create a monthly budget before starting your savings journey.
What is the 10% saving rule? ›
The 10% rule of investing states that you must save 10% of your income in order to maintain a comfortable lifestyle during retirement. This strategy, of course, isn't meant for everyone as it doesn't account for age, needs, lifestyle, and location.
How much money do you need to retire with $100,000 a year income? ›
So, if you're aiming for $100,000 a year in retirement and also receiving Social Security checks, you'd need to have this amount in your portfolio: age 62: $2.1 million. age 67: $1.9 million. age 70: $1.8 million.
Is saving 10% of your income enough? ›
Retirement
You should consider saving 10 - 15% of your income for retirement. Sound daunting? Don't worry: your employer match, if you have one, counts. If you save 5% of your income and your boss matches another 5%, you've accomplished a 10% savings rate.
What is the 10-10-10-70 rule? ›
There are several different ways to go about creating a budget but one of the easiest formulas is the 10-10-10-70 principle. This principle consists of allocating 10% of your monthly income to each of the following categories: emergency fund, long-term savings, and giving. The remaining 70% is for your living expenses.
What is the 70 20 10 rule for savings? ›
The 70-20-10 budget formula divides your after-tax income into three buckets: 70% for living expenses, 20% for savings and debt, and 10% for additional savings and donations. By allocating your available income into these three distinct categories, you can better manage your money on a daily basis.
What is the 80-10-10 rule money? ›
When following the 10-10-80 rule, you take your income and divide it into three parts: 10% goes into your savings, and the other 10% is given away, either as charitable donations or to help others. The remaining 80% is yours to live on, and you can spend it on bills, groceries, Netflix subscriptions, etc.
What is the average 401k balance for a 65 year old? ›
Can you retire at 60 with $300 000? ›
The short answer to this question is, “Yes, provided you are prepared to accept a modest standard of living.” To get an an idea of what a 60-year-old individual with a $300,000 nest egg faces, our list of factors to check includes estimates of their income, before and after starting to receive Social Security, as well ...
How much does the average 75 year old have in savings? ›
Savings by Age
| Age | Average Account Balance | Median Account Balance |
|---|
| 45 to 54 | $48,200 | $6,400 |
| 55 to 64 | $57,670 | $5,620 |
| 65 to 74 | $60,410 | $8,000 |
| 75 and older | $55,320 | $9,300 |
2 more rowsSep 19, 2023
You can still live a fulfilling life as a retiree with little to no savings. It just may look different than you originally planned. With a little pre-planning, relying on Social Security income and making lifestyle modifications—you may be able to meet your retirement needs.
What is a good monthly retirement income? ›
Average Monthly Retirement Income
According to data from the BLS, average 2022 incomes after taxes were as follows for older households: 65-74 years: $63,187 per year or $5,266 per month. 75 and older: $47,928 per year or $3,994 per month.
Is 10k in savings too much? ›
There's nothing wrong with keeping $10,000 in a savings account. But it might not earn you the highest yields. CDs and brokerage accounts could be better homes for your cash in some situations.
What is the 70 20 20 rule? ›
Use the 70-20-10 Rule in Budgeting
The 70-20-10 rule holds that: 70 percent of your after-tax income should go toward basic monthly expenses like housing, utilities, food, transportation, and personal living expenses; 20 percent should be saved or put into investments, leaving 10 percent for debt repayment.
How to split income for savings? ›
How to split a paycheck when you want to spend less, save more
- 5 min read | May 18, 2023. Impulsive online shopping. ...
- Keep essentials at about 50% of your pay. ...
- Dedicate 20% to savings and paying down debt. ...
- Use the remaining 30% as you please—but don't track expenses.
You divvy up the percentages as so: 70% is for monthly expenses (anything you spend money on). 20% goes into savings, unless you have pressing debt (see below for my definition), in which case it goes toward debt first. 10% goes to donation/tithing, or investments, retirement, saving for college, etc.
What is the 50/20/20/10 rule? ›
50% for living expenses (NEEDS). This includes things like your housing, transportation, groceries, utilities, etc. 20% for to personal expenses (WANTS). This includes things like entertainment, subscription services, coffee runs, dining out, etc. 20% for saving and/or paying down debt (SAVINGS).
How do I calculate 10% of my income? ›
Either way, take your gross earnings—the amount before taxes or other deductions are withheld—and multiply that number by 0.10. (This is the same as dividing by 10.) For example, if your biweekly paycheck has gross earnings of $1,350, that means you would set aside $135 for savings from each paycheck.
What is the 7 rule for savings? ›
The seven percent savings rule provides a simple yet powerful guideline—save seven percent of your gross income before any taxes or other deductions come out of your paycheck. Saving at this level can help you make continuous progress towards your financial goals through the inevitable ups and downs of life.
What is the 50 30 20 rule for savings? ›
The 50/30/20 budget rule states that you should spend up to 50% of your after-tax income on needs and obligations that you must have or must do. The remaining half should be split between savings and debt repayment (20%) and everything else that you might want (30%).
