You’re not the only one who struggles to save money. In fact, most Americans are pretty bad at it. A 2017 survey from GOBankingRates found that 57 percent of Americans have less than $1,000 in their savings accounts.
Pamela Capalad, a certified financial planner and founder of Brunch & Budget, told INSIDER that saving for retirement can seem like a daunting task for many people.
“I think most Americans (or at least my clients) hear they have to have X number by retirement and they throw up their hands and say, well that’s never going to happen, so let me just give up now,” Capalad said. “Saving starts as a habit, a muscle you build so it becomes a natural part of your financial life. It’s more important, if you’re not used to saving, to learn how to internalize that habit than feel bad about a magic number that you feel like you can never reach.”
But it is essential to start saving money as early as possible in life, financial experts say.
“The earlier you can begin to save money — no matter how small or large the amounts, the more likely you will be to set up healthy habits for the future,” Jim Marrocco, a certified financial planner at Thinking Big Financial, Inc., told INSIDER.
Here’s how your savings should look at every stage of your life.
If you’re in your 20s, focus on becoming debt free and growing your career.
Millennials, you can breathe a sigh of relief. (Kind of.)
Financial experts generally don’t expect people in their 20s to have much saved for retirement because so many Americans in their 20s are struggling with repaying student loans. Instead, 20-somethings should focus on tackling that debt and growing their career and income.
“I try to encourage clients to use 10 to 20 percent of their income to increase their net worth, rather than focus explicitly on how much they’re trying to save,” Matt Cosgriff, a certified financial planner at BerganKDV, told INSIDER. “For someone with $200,000 in debt, focusing on saving 20 percent is likely to be impossible. However, if they can funnel a good chunk of their paycheck to paying off debt, while also balancing saving 5 percent of their income, that can be an effective strategy.”
Kaya Ladejobi, a certified financial planner and founder of Earn Into Wealth Strategies, LLC, said it’s difficult to pinpoint a specific dollar amount that 20-somethings should have saved because everyone’s journey is different.
“For example, I have 27-year old doctor clients who are just about to get their first job ‘residency,’” Ladejobi told INSIDER. “They are past mid-20s and just now getting the opportunity to work in their career. And then you have student loans which makes it really challenging for a lot of young people to set money aside.”
Ladejobi also said that young people should be more concerned with their net worth than their retirement savings.
She tells her young clients to measure how much they have earned during their working years and see if they have been able to improve their net worth by 10 to 20 percent of what they’ve been making per year.
If you have a lower income, a larger portion of your earnings will have gone to living expenses, so 10 percent might be a more appropriate goal, Ladejobi said. But if you can afford it, you want to try to hit the higher benchmark of at least 20 percent.
“Some people will have more set aside,” she said. “Let’s assume you are 25, have worked for four years and your taxable income has been $60,000 each year, so you have earned $240,000 in total. Multiply that by 10 to 30 percent and check to see if you have grown your net worth by at least $24,000 to $72,000 over the course of the four years that you have earned.”
Growing your net worth can take the form of multiple types of assets, she said, from cash to a retirement plan to real estate or reducing debt.
“Just make sure that your net worth is getting better with each year of work,” Ladejobi advised.
Taking the time to invest in your career in your 20s will help you be save down the road.
Investing time and money in your career in your 20s will help you make salary jumps, Ladejobi said.
“Go to that career conference, network, subscribe to the trade magazines of your profession and grow your earning power until you can afford to set some money aside for the future,” she said.
Capalad added that a 20-something living in a big city may not save as much money as someone living in a smaller city.
“But that decision to live in a big city in your 20s maybe helped your career take off in your 30s,” she said. “So maybe you didn’t have as much saved as you could have in your 20s making different lifestyle decisions, but you ended up in a very different and perhaps more satisfying situation — financially and otherwise — in your 30s.”
In your 30s and 40s, you should be more financially stable and make saving a priority.
Once you’re into your 30s, ideally you will be more financially stable and able to dedicate more of your income to savings.
A 30-year-old with a household income close to $50,000, for example, should have about $20,000 saved toward retirement, according to one estimation from a J.P. Morgan Asset Management chart.
Cosgriff said that he uses this chart with his clients as a rough check-in point for how much they should have saved at their stage of life.
The chart starts at age 30 — which is perhaps comforting for the 20-somethings wondering how in the world they’re supposed to be developing their careers, paying off student loans, buying groceries and saving for retirement — and lists ages in five-year increments.
To see how much you should have saved up, find the intersection of your current age and your closest household income. You then multiply your income by the “checkpoint” number shown to determine how much you should have put toward retirement.
For example, a 45-year-old with a household income of around $75,000 should have about $225,000 saved up.
Cosgriff said that, although he uses the chart as a guide, how much to save largely depends on how much you want to spend in retirement.
“As a general rule we try to encourage people, once they’ve tackled student loan and other debts (except mortgage), to save 15 to 20 percent of their income towards retirement or financial independence,” he said.
Watch out for lifestyle creep.
Cosgriff warned against your spending keeping up with your income as you make more money in your 30s and 40s.
“As careers grow and subsequently income, it’s critical to combat lifestyle creep, which is the gradual rise of expenses as income increase,” he said, “If you can do that successfully over time, it can easily combat (as income rises) not being able to save 10 to 20 percent early in your career given the crippling student most of us find ourselves battling.”
In your 50s and 60s, focus on setting aside money for retirement.
As you get closer to retirement age, your savings should be becoming more significant.
A 55-year-old with a household income of $50,000, for example, should have about $165,000 saved up, and someone with a salary of closer to $75,000 should have around $382,500.
By the age of 65 you should aim to have about $117,000 saved — even if your household income is on the lower end of the spectrum — according to the J.P. Morgan estimates.
“The biggest mistake I see is that people save for retirement, but without really knowing how much they need to save or assuming that putting some money into a 401K or retirement plan will be enough,” Marrocco said.
Having a clear intention in mind for how much you want and need to save is key.
Here’s how to get started when saving seems impossible.
If you’re feeling discouraged, remember that most Americans don’t meet these goals.
“Generally speaking, most Americans are way behind when it comes to saving for retirement,” Cosgriff said. “Our industry has largely for years focused entirely on investing and saving, which fundamentally misses the point. You can’t save if you don’t earn the right to save, which means you can’t save if you don’t actually have money left at the end of the month to save!”
It all starts with budgeting and effectively managing your finances so you put yourself in a position to save and invest long-term, he said.
“Spending less than you earn — earning the right to invest — is simple advice, but that doesn’t mean it’s easy when it comes to balancing student loans, saving for college, and bills.”
Mary Ellen Hancock, a certified financial planner and senior wealth strategist at PNC Wealth Management, told INSIDER that many factors including “competing interests for your dollars — raising a family, education, taking care of parents and/or siblings, unexpected large expenses, and not being properly insured” can make it difficult for people to save.
Taking the first step to saving money can be the hardest part.
Capalad recommends trying what she calls “microsaving” smartphone apps.
“Apps like Qapital and Digit are a great way to get started,” she said.
Qapital is a free app that tracks your spending habits and automatically puts aside money to go toward your goals. Digit is another app you can use to almost trick yourself into saving money.
Setting up automatic transfers into a savings account that is not linked to your checking account can also be helpful, Capalad said.
“I just had a client open a separate savings account for the first time and she said she loves it — it feels like money she can forget about,” she said.
It’s all about building the habit to save, Capalad added.
“Part of the habit is learning to NOT touch savings, even if it feels like a small amount,” she said. “It’s going to look stupid to you to have $25 in your savings account. What’s that going to do, right? But the practice of leaving that $25 in there, then $50, then $100 is what’s going to build the habit and the bank account.”