How Much Should You Be Saving Every Month
A plan for reaching financial freedom
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Weekly Market Update 🗒️💡
All 3 major indexes closed lower on Friday. The S&P 500 and Dow Jones recorded their 2nd consecutive week of losses. The Nasdaq fell 0.4% while the Dow lost 0.03% and the S&P 0.2%.
The Bank of America stated its position on Krispy Kreme (DNUT) and rated it a BUY after the company beat Wall Street expectations in Q1.
20 million people, or 15% of US households. That’s how many customers have signed up for Walmart’s membership program.
Bearishness dropped to 41% from 45%, but the historical average over decades sits around 31%. Bullishness rose to 29% from 24% last week, with an average of 37%.
This marks the 75th week of the past 77 that we saw bullishness below the norm. Although optimism in the market continues to be low, it’s not alarming.
3 New S&P 500 Highs:
General Mills (GIS) - trading at all-time highs
Pepsico (PEP) - trading at all-time highs
First Solar (FSLR) - trading at a price we haven’t seen since 2008
Tweet of the Week
Today we’re going to be answering the golden question:
“How much should you be saving?”
And while that’s not an easy question to answer, I will be guiding you through the process so you can make an educated decision on how much you should be putting away every month.
A budget is like a workout routine, it’s not one size fits all
When it comes to budgeting, there isn’t one single budget that works for everyone. It has to be catered to your lifestyle specifically. Just like a workout routine, like a diet and very similar to an investment strategy.
A budget has to take into account the following:
Your income
Your spending habits
Your dependents (kids, parents, grandparents, etc)
Your age
Just because Johnny down the street can save $1,500/month, doesn’t mean you can. And vice-versa.
What people fail to realize is there is no secret sauce to budgeting. There are only basic principles that should be followed, which will determine how much you should be saving every month. Let’s get into it.
The 50/30/20 rule
Trying to figure out how much you should be saving every month can be a difficult task, especially if you’ve never followed a strict budget before.
The 50/30/20 rule makes it easy.
The rule says:
50% for needs
30% for wants
20% for savings/debt repayment
Essentially this rule splits your after-tax income into 3 different categories so that you can do the math quickly and be on your way. Make sure you’re calculating these amounts on after-tax income only so that your numbers aren’t inflated.
Needs - 50%
Housing
Transportation
Insurance
Child care
Food
Water
Loan payment minimums (anything above the minimum would go into savings and debt repayment)
Wants - 30%
Entertainment
Bar
Eating out
Travel
Savings/Debt Repayment - 20%
Starting an emergency fund
Saving for retirement
Putting money away for a downpayment on a house
Investing money into the stock market
Paying off high-interest debt
Let’s look at an example:
Sally brings in $2,000 (after tax) every month from her job.
Between rent, food, utilities, and basic necessities, she spends $1,000/month.
That leaves her with $1,000 left.
This will be split $600 into the wants fund and $400 into the savings/debt repayment fund
Since this is a rule of thumb, it can be altered to fit your needs.
Personally, my split is a bit different and I place a higher emphasis on Savings/Debt Repayment which is closer to 40-50%.
I’m able to do this because I have a fairly long time horizon, no dependents, my cost of living is low and my entertainment is relatively cheap.