Saving money can never be overemphasized. There are different methods of doing that and irrespective of one’s age, it is important to learn and practice how to save. Not only does it help you gain control of your finances, but it’d help you understand the money you own.
In other words, we save because the future is unpredictable and cultivating the habit of saving can help one become financially secure and provide a safety net in case of any emergency that may arise. According to Sergio Garcia, a Certified Financial Planner at Brennan Financial Services, “a working individual should have enough cash to provide an emergency buffer against any pitfalls that could hinder financial wellbeing”.
Financial analysts propose that one should save about 10-15% of their income annually. Unfortunately, only a small number of people commit and not all of them meet the required savings benchmark.
In Nigeria, the average graduate age is 24. While some have the privilege of living in their parents’ house, others become self-dependent after graduation, sometimes even before. Whichever category you fit in; it is advisable that you start saving your money. Even children should be taught the importance of savings. As they grow with the joy of reaping the reward of their savings at the end of every year, they would get to develop a passion for saving.
Before we delve into how much money you should have at every age, let’s quickly look at some of the reasons we save;
- Education: As we may already know, education isn’t cheap. In fact, it is very expensive. Not just monetarily, but also in terms of hard work and commitment. If you are preparing to go into the university, saving up would help you in many ways. Parents typically plan educational savings for their wards, and this allows them to manage the high cost of education.
- Vacation: As you work hard, learn to keep money aside for personal pleasures. That is the reason for working hard, after all, to have enough money to live and enjoy life.
- Retirement: It is also essential to have enough money saved for that period of your life when you can no longer engage in strenuous work activities.
- Unexpected Contingencies: One of the motives for holding money, as taught by Economists, is the precautionary motive. This means saving money for emergencies. Having enough money to solve unexpected crises can protect you from a lot of bad experiences.
In determining what to save at every age, it is crucial to develop a budget using your income. Ensure you calculate and plan your disposable income – that is the earnings you have after tax and other expenses have been deducted. Avoid the mistake of developing a savings budget off your gross income. If you do that, you’d be creating a budget based on the money that isn’t yours, to begin with. Remember that your potential savings are the difference between your net income from your usual expenses.
According to various financial experts like David Bach, and working from a formula developed by the acclaimed retirement-plan provider, Fidelity, it is easy to determine how much to save at different ages by merely multiplying your starting salary by a factor of X. It is expected that at entry-level, which is usually from 25-30, you should have the equivalent of your income saved.
Ages 30-35: you have 2 times your salary saved
Ages 35-40: you should have 3 times your salary saved
Ages 40-45: have 4 times your salary saved.
Ages 45-50: have 6 times your salary saved
Ages 50-55: have 7 times your salary saved
Ages 55-60: have 8 times your salary saved
Ages 60-67: have 10 times your salary saved.
However, it is crucial to bear in mind that this is a generic formula. If you don’t have the equivalent of your income, do not panic. Just as previously outlined, your savings behavior should be one that matches your income, lifestyle and goals.
This isn’t to say that you should be lax in your savings. Regardless of your age and financial status, you must be disciplined in your saving culture. No matter how little, it would go a long way to cushion against unexpected expenses.