Quote:
Originally Posted by Mike75
I don't think its necessar to save 1/5 of your income in the initial stages. Right now, your expenses must be high and aiming to save that much will just put pressure on you.
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A person has to start somewhere... a savings plan built on percentages will be "easier" to maintain when raises kick in.
If a person makes 30k per year and they start at 5% (with the goal of getting to 15%), they will be saving $1500 per year. Some company's (like Vanguard) will not even let you invest with them at such low amounts.
If in this same situation a person adds 2% per year to savings (based on raises) they will get to the goal in 7 years. If they add 3% to savings they will get to their goal in 5 years. Goal is 15% savings.
This would imply that "most" of any cost of living raises are being added to savings to hit a target saving percentage.
My argument in above situation is for those 5-7 years a person is living well above their means. If the initial saving percentage is set at 15%, any raise a person gets will increase their standard of living, and only a portion of the raise gets added to savings (15% of every raise would be added to maintain savings percentage).
If you use the 20% guideline I used in original post, it would take 10 years at 2% and 7 years at 3%. 20% implies 15% to retirement and 5% to short and mid term savings for large purchases.
Both techniques work, my argument for any person is to spend less than you earn by saving 20% once you decide to start saving or paying down debt. This establishes you as spending less than you earn which is the best way to financial success.