As you near 30, you probably have lots of different financial goals. Maybe you’re starting to be established in your career and planning to buy a house or a new car. Maybe you’re getting close to paying off student loans and want to save for a big trip. And retirement may seem a long way off, but in reality, it’s never too early to start saving and planning.
You might know you want to save money towards all these different things, but you don’t know exactly how much you should have saved. Even little bits you set aside now can add up, and if you invest that money in a retirement account or an investment portfolio, then the returns on your money can make their own returns. Unfortunately, it can be hard to know if you’re on track and how much you should be saving by 30, 40, 50, and so on.s
According to the 18th Annual Transamerica Retirement Survey , 71% of millennial workers are saving for retirement—which is great news. And a Bank of America survey found that 16% of millennials have $100,000 saved up—which is even better news.
So, How Much Is Enough?
There are a few schools of thought on this subject. Some say you should try to have the equivalent of your annual salary saved by the time you’re 30—including your retirement accounts. Alternatively, T. Rowe Price suggests that you have only half of your annual salary saved by the time you’re 30, and to increase your retirement savings as you age. The goal here is to have ten times your annual salary saved by 60.
Both options could work for you, depending on your other financial goals. T. Rowe Price also suggests another approach—figure out the amount you ultimately want to save, what your financial goals are, and then plan backwards. When are you hoping to retire?
What other goals do you want to save money for—a down payment on a house, your kid’s college fund? What is your annual income and assets? What are your future career plans? Answering these questions could help you come to a number.
Because so much of your retirement and savings benchmarks are personal, another way to think about how much you should be saving by 30 is as a portion or percentage of your overall income.
For example, when you’re just starting off, you might not be able to set aside as much of your income— especially if you’re still paying off student loans or other debt.
By the time you’re 30 (or when you’re making more money), then you might be able to increase the percentage of your salary you’re saving.
This can involve a lot of financial multitasking for various goals. How do you hit all the right targets and stay on track?
How to Set Targets
In order to set savings targets, you’ll likely need to consider your overall budget and your financial goals, and then decide what your priorities are and how much you can set aside for future financials goals after taking care of your immediate financial needs. A good first step to consider—make a budget and plan out your goals. What do you want to save money for? How much needs to be saved in order to hit those goals?
That can be your target. Then you can plan backwards and start setting aside what you need to save in order to reach your goals. You might want to look into starting a retirement savings plan—there are more options than just an employer-backed 401(k).
If you have debt, like student loans, then paying that off might be one of your first priorities. Consider paying off the highest interest rate loans and credit cards first and, if it makes sense for you, refinancing to lower interest rates when possible.
Next, you might be thinking of setting money aside for retirement. If your employer offers a 401(k), then it can be a good idea to contribute however much they will match, if applicable. If your employer doesn’t offer a 401(k), then consider another retirement savings account option.
Along with those priorities, you may want to make sure you have three to six months’ worth of expenses in a separate emergency fund, which should stay relatively liquid in case you need to access it for emergencies.
After you address your immediate bills and priorities, you should be able to then look at your budget and figure out how much extra money you can set aside towards medium-term or long-term goals. There are different strategies for saving: You can start with a small amount of money set aside each month, and then increase it slightly until you hit the target you established for your goal.
Instead of just creating one large target, like the amount needed for a house down payment, working backwards to set weekly and monthly targets for yourself can also make it easier to stay on track, as can creating different accounts or portfolios for each of your financial goals. If you set up automatic transfers—for example, a portion of your pre-tax salary can often automatically be put into your 401(k)—then you don’t even have to think about it.
Another strategy is to take money that’s a windfall or that you were already setting aside for one goal, and then save it for something else once you achieve your initial target. For example, if you get a raise, you could put the additional money into a savings or investing account instead of spending it.
Or, once you have established an emergency fund, then you could take the money you had been setting aside each month for that and put it toward your retirement or another long-term financial goal instead.
Don’t forget—when calculating how much you have saved up, count all employer match funds, emergency funds, and anything in various retirement accounts.
Depending on the type of account, the money that goes into retirement accounts could be pre-tax, so the tax savings cut down on the cost of setting aside money.
Investing by 30
Something else to consider when thinking about how much savings you should have by 30 is investing. That way, your money goes beyond stockpiling cash in savings or checking account.
Some research suggests that adults between the ages of 18 and 34 save at higher rates than previous generations, but keep that money in a savings account rather than in investment or retirement portfolios. This may feel like a safer scenario, but it could be costing you money in the long run.
Even if an interest-bearing savings account gives more than 1% return on your money, it might not be enough to keep up with inflation . If the return on your savings isn’t even keeping up with inflation, then you’re technically losing money.
Obviously, any given year the market could go down or up and there’s no guarantee your investments will make money. But, in the long run, investing your money can be a better idea than just holding onto it.
So how much should you have saved by 30 and how much should you be investing? While it depends on your overall financial goals and situation, once you have an emergency fund saved up, consider putting some of the money for your retirement and other long-term plans into investment accounts. That also allows you to vary how aggressive you want to be with different investments, based on when you want to use the money and what for.
How to Invest and Save
Investing can be confusing, and figuring out how much you should have saved by 30 while balancing all your other financial goals can seem overwhelming. This is when a professional can come in handy.
Fortunately, you don’t have to do it alone. SoFi Invest® can be a great resource. The minimum amount to invest is just $100 and there are no SoFi management fees for automates investing. You can also roll over existing retirement accounts.
To get you started, a real human advisor will help you figure out what kind of financial plan makes sense for you—how much money you should have saved, how much you should set aside in a retirement account, how much you should invest, etc. SoFi then tailors an investment portfolio to meet your needs.
Choose how you want to invest.
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