We all lead different lives. Our incomes, expenses, needs and priorities are as diverse as the lives we lead. We are also at different stages of life.
However, regardless of the stage in life, one thing remains constant – the need to have enough saved up. Enough to see us through an untimely layoff, an emergency, or an unprecedented event that could have adverse effects such as the current pandemic.
So, what is a healthy amount to have saved at every stage of life?
There are multiple schools of thought on the matter. However, here’s our rule of thumb informed by our research and consultation with trusted authorities.
Saving anything will seem like a challenge so soon after graduating. Even with a well-paying job, there will be a lot of pressure to buy cool stuff and blow money on parties. You could also be thinking of doing more sensible stuff like pursuing post-graduate education or buying your first car. The truth is that all these things can take out all your starting salary and leave a little surplus.
The important thing here is to start saving immediately there is an income of any kind in order to develop a savings culture. Save a percentage of your salary or better still, take on a side gig to generate a little extra income towards your savings.
As such, there’s no rule for how much you should save in your twenties. Just save something, anything, spend less and don’t incur unnecessary debt.
As you gain work experience and land promotions or better jobs, you can increase the amount you save.
For most people, this is the decade that the aspiration to buy or build a house, buy a car, have a family and invest in an income-generating project kicks in.
There’s also the small matter of debt catching up, all of which might make one consider Savings secondary.
Still, at a minimum, one should save the equivalent of their annual salary before hitting forty.
If you can manage to save 15% of your salary every month, then you will be set for the better part of your life and will be in for a rosy retirement.
As your career peaks, and your salary improves, you should be able to have 3 times your annual salary on a savings platform that earns interest – like Kava.
One is advised to observe the 70-20-10 spending guideline in these years, with living expenses not going past 70% of your monthly income, debt payments being 20%, and Savings taking a cool 10% of your monthly income. This way, you will be able to have a healthy Savings balance as you head to the most intense 10 years of savings ….
The fifth floor is the stage where most people’s careers wind down and their incomes start to fall. Most importantly, though, so does their expenditure. Most loans have been repaid, and children – who are responsible for a huge chunk of household bills – are now independent.
That said, this would be the time to really tighten one’s belt and ramp up savings because retirement is looming. As such, one is advised to save at least six times their annual salary before sixty.
Your 60s, 70s and Onwards
The average Kenyan retired in their sixties, and although most retirees will have started a business to maintain their lifestyle, they don’t expect to take home the same income they did hitherto.
But keep saving because you never know. Anything can happen, especially those around health. Old age actually increases the chances of anything happening, so you must be fully prepared.
It’s important to remember these benchmarks may not work for everyone. Keep assessing what is good for you, keep adjusting and always seek advice from financial planners. By all means, keep going.
How to Maintain Savings Culture Through the Years
The recommended rates may seem too high for starters. Here’s how you can make your targets achievable:
Pay Down Debt and Don’t Incur Unnecessary Debts – Every time you borrow money, you are robbing your future self. Every time you save money, you are enriching your future self. You can take loans to advance yourself but ensure you repay them on time to avoid high interest – money that could go to your savings.
Go for an Online Account – Savings platforms like Kava are a convenient way to save and earn interest effortlessly. They are also highly liquid, meaning you can easily access your savings in good time should there be an emergency.
Start Now, However Small – Save as much as you can afford now and increase the amount as you get more income.
Prioritize Savings – Save first, then spend later or at least include savings in your budget.
Automate and Set Reminders – Include savings in your standing orders and set reminders to save. Life can come at you fast so guard yourself against forgetting this very important task.