How Much Money Should I Have In Savings Account

How Much Money Should I Have In Savings Account – Have you ever used a money saving chart? Personally, I love them because I feel like I can sit there and look at people of different ages and compare myself to them, but there’s one big issue – they’re all terrible!

As I mentioned, many of these charts will have goals that are just the worst advice ever. It drives me absolutely crazy. For example, look at these two charts:

How Much Money Should I Have In Savings Account

The first says you should have 10 times your salary at age 65 and the second says 8 times your salary at age 65. The point is that it is also very wrong!

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Here’s the thing – let’s say you and your spouse both win $100K, or $200K total, which is a lot of cash. That means you’d need $1.6-$2.0 million to make 8-10X your $200K/year gross salary, right?

Well, using the 4% rule, that means you’ll be able to pull out $64K – $80K every year! Now, that sounds like a good amount of money to me to be able to withdraw constantly without fear of running out of money, but if you’re used to a $200K per year salary… not going to be happy. .

The same thing is true with low wages, but I think it’s actually even more damaging.

If your salary was only $50K and you were single, you would have saved $400K, which means you could only withdraw $16K each year.

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You see, I love this simplicity, but they are just so, so, so wrong. And people look at these charts because they look clear and it’s easy to remember that you just need to multiply your salary X 10 or something along these lines, but that’s just terrible advice. But these aren’t the only charts that drive me nuts.

You see, all you know is the amount you “must have”. You don’t know how much money you need to save if you have that amount or not, the interest rate, the age you will retire if you have that amount… I mean, you really don’t know anything. don’t know that’s right?

Ugh I’m so sad just watching this. The proliferation of false, misleading and incomplete information is incredibly frustrating.

Now, I will say that there are some charts that I have found that I really like. One of these charts is below:

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The thing I like about this chart is that I can find my age range and then see where I fall in with other people my age. I wish the age range wasn’t so wide, as a millennial can be anything from someone who is a high school senior to someone who has been in the workforce for nearly two decades, but it is what it is. These are

But there are no guesses about this – only facts. And the facts are complete. So, I can make sure I’m on top of the chart and if I’m not, then I can work to find a better plan to make sure I can get to the top.

This is a very simple chart and does absolutely nothing other than use the 4% rule I quoted you to show the amount you need to save to get a certain annual retirement income.

The thing I don’t like about this chart is that it really looks overwhelming to someone who doesn’t understand the importance of compound interest and the way it can completely change your life.

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For example, if you make $100K a year, the most you’ll make in 40 years is $4 million, right? There is no way you could ever save that much money. You would have to save 62.5% of your money, or $2.5 million, to be able to withdraw $100K/year in retirement, assuming you didn’t invest anything in it.

Or, you can invest some of it, a really small amount, at an 8% rate of return (when the rate of return is actually much higher), and then you can easily End up with $4 million.

As you can see, simply investing $14,300/year for 40 years will get you there. Not too bad?

Or, if you just want to reach the $2.5 million I mentioned, you can invest much less:

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That’s the power of compound interest and if you’re not taking advantage, you need to change that ASAP.

You can simply do the exact same math I do using the compound interest calculator, my favorite with MoneyChip.

But you know what? Some of these charts are good, some are okay, and some are terrible…but maybe I’m just boring and impossible to like.

I decided to make 5 different charts that show different time horizons between 20-40 years, in 5 year increments, showing the exact amount of money you need $1 million, $2 million, $5 Save dollars to reach the goal. million or 10 million dollars. I also took into account the 8% rate of return that I mentioned above, so if the actual return on investment in the market is above that, you will be able to reach your goal much faster!

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The purpose of these charts was basically to break down where you need to live depending on your outlook on when you want to retire.

So, let’s imagine you want to retire in 20 years with $2 million and you haven’t started saving. don’t worry! At the end of the first year you need to save $43,705 for retirement to be on track after the first year.

Yes, that’s a lofty goal, but saving $2 million from scratch in 20 years is a pretty big goal! So, it will take some serious motivation and dedication on your part, but that certainly doesn’t mean it can’t be done.

Now if you are three years into the same journey that you want to reach $2 million in 20 years, you will save at least $141,885 and set aside for retirement! If you don’t, you’ll likely run into some trouble down the road.

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One thing I want to point out is that when I use the 8% return, it applies equally to all years. So, if you think that the stock market returns an average of 8%, some years may have a return of 20% and some may be less than the previous year.

A good example is in 2019 where the S&P 500 was up 30% in 2020 or even 16% in 2020. If you’ve maintained that same pace after 30% of the year (or 16%) in the market, your real contribution to your retirement goal is likely really, really lacking. There will be years where you depreciate, I’m sure, and some years where you explode.

I mean, if you’re sitting there in year 17 and you’ve got a 30% increase in your investment, and the amount you’ve actually contributed to the market, you can take your 2 million in the next year. Reach the goal and only need 18 dollars. All the years

Meanwhile, if you’re sitting with $1.8 million in year 19 and the market is falling, you’ll likely need 21-22 years to reach your goal now.

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The market is moving and so should your goals – you can only control what you can control, so just look at the return of the S&P 500 as something you can’t control and only against the index. Focus on benchmarking your performance and try. He broke the index.

You will notice that everything in the chart is the same except that the time frame has been extended from 5 years to 25 years:

By extending the time frame, all it does is allow you to have a smaller goal that you need to reach each year. If you remember correctly, the amount you need after 1 year if you hit $2 million is $43,705.

By adding another 5 years, you now only need $27,539 after 1 year. Basically, you’ve added 25% to your investment over time and now your Year 1 balance can be reduced by 37%! It’s very hard.

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What this tells me is that timing is more important than ever, which means you need to do what you can to start early because even small investments add up.

It’s important to understand how the difference in your schedule affects the amount you need to save each year. My recommendation is to always start with a realistic goal but also have a “broader” goal that can motivate you to save/invest at an even faster rate.

I’m a big fan of SMART goals, which means they’re specific, measurable, achievable, realistic, and time-based.

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