Though a 10 per cent savings rate may be a popular savings norm, it’s probably not a savings rate that will afford you your dreams, it’s not a savings rate that will allow you to stop working or retire early or achieve the financial goals that matter most to you.
If you maintain your current savings rate on your current take home salary, how much will you have saved in one year, five years or ten years? And how does that sum compare to the cost of the lifestyle you want to live and the money milestone dreams you want to achieve?
Maybe, instead of shooting for an arbitrary savings rate like 10 per cent, we can reframe our savings rate within the context of what we actually need to achieve our savings goals.
If you can’t save 10 per cent of your pay right now, please don’t be discouraged. If you’ve just graduated or you’re paying off a lot of debt or you’re recovering from a job loss or a divorce, it’s going to take some to get your finances in order and start saving. In such cases, establishing (or re-establishing) the habit of saving is more important than the actual amount you save.
You might not be able to save 10 percent of your paycheque, but can you save 2 per cent or 1 per cent or even just $5 each week?
You can always increase your savings contributions as you’re more able – when you get more of your debt paid off or you get a new job or you score a raise – but having the savings habit already in place, (no matter how small your contributions currently are), will serve you when the time to scale those contributions comes.
If you’re not saving at least 10 per cent of your paycheque for other reasons, (like overspending), it might be time to get serious about learning to live within your means.
Here is an approach that can help curb your overspending.
- Consider both your short- and you long-term goals. Yes, you might want to buy a house in 5 years, but you also want to consider how much progress you’ll want to have made on your longer-term goals like saving for retirement.
- Rethink your idea of what’s 'normal' and rejecting 'standard rules' like 'save ten percent of your income', in order to open you up to longer term opportunities.
- Brainstorm different possible futures, and write down the pros and cons of each. Think through your fears and identify what it is that’s holding you back from making these kinds of drastic lifestyle changes, and conversely, write down what you would stand to gain by adopting them.
- Identify resources for support and opportunities to increase your income so that you can increase your savings contributions.
- Print out a picture of your goal purchase or lifestyle, and put it in your wallet wrapped around your cash and credit cards, so that every time you consider a purchase, you have to consider the trade off of not saving.