What percentage of your income should you save at every age?

As you move across the various stages in life, your financial goals and dreams may also keep changing. You’ll have a different target to achieve at each stage. This is why it becomes extremely important to draw up an adequate savings plan and stick to it. However, this is often easier said than done, primarily because most people have little to no idea about how much to save. If you’re in the same boat, then this guide will help you chalk up an age-related savings framework.

How much to save at every age?      

Before we move on, it is important for you to understand that these values and percentages of income are merely averages. Technically, there are no clear-cut rules with respect to the percentage of income that you should save at every age, since it basically depends on your individual financial goals and objectives. The following pointers are only meant to serve as a guidepost that can help you chart out your own plan. 

By the time you reach 30

There have been extensive surveys and informal researches conducted by various investment management companies such as Fidelity and T. Rowe Price. According to these studies, by the time you reach 30 years of age, you should ideally have around 50% to 100% of your current yearly salary saved up.

For instance, assume that you’re 25 years of age drawing a yearly salary of around Rs. 3,00,000. By the time you reach 30, you should have ideally saved up around 50% to 100% of your current salary, which comes up to around Rs. 1,50,000 to Rs. 3,00,000.

While reaching this figure is important to be able to satisfy your financial objectives, the number one thing that you should focus on when you’re in your 20s is to get rid of your debt. By paying off your debts early, you can save up a larger portion of your income in the years to come. 

Additional Read: How and where to keep an Emergency Fund?

By the time you reach 40

Here’s when things start to pick up. When you’re in your 30s, you will most likely be earning at a faster rate than when you are in your 20s. So, ensure that you make full use of this period for saving up and building your corpus. As a rule of thumb, by the time you reach 40 years of age, you should have around 200% to 300% of your current yearly salary as savings.

Let’s take up the previous example once again. By the time you reach 40, you should have saved up 200% to 300% of your current salary of Rs. 3,00,000, which would come up to around Rs. 6,00,000 to Rs. 9,00,000.

Ideally, by the time you reach 40, you should have paid off all your existing debt. However, if you find yourself in debt even by this age, then ensure that no more than 20% of your income goes towards paying them off. 

By the time you reach 50

By this age, your savings corpus should have grown tremendously. Additionally, you would also most likely be in a senior position in your organization, with a significant increase in your salary. And so, by the time you touch 50 years of age, your savings should have increased to around 500% to 700% of your current salary.

Using the same example, let’s try to compute just how much you should have saved. By this time, you should have around Rs. 15,00,000 to Rs. 21,00,000 as your savings.

By the time you reach 60    

As your retirement fast approaches, your 50s are the perfect time for you to cut down on your expenses and focus on your savings aggressively. This way, you would be able to maintain your current lifestyle even after you’ve retired and lost your primary income source. Furthermore, your 50s would most likely be the years where you earn the highest. And so, it makes sense to increase your savings multifold. Ideally, you should have saved around 800% to 1,100% of your current salary by the time you touch 60.

Going by this percentage of saving, this would mean that you would have had to save around Rs. 24,00,000 to around Rs. 33,00,000.    

Additional Read: Is ELSS a Wealth Creation & Tax-Saving Tool?

Conclusion

Now that you know how much to save, there’s another major point that you should make note of. The above-mentioned age-related savings framework are merely rules of thumb that can be flexed around a little. Always remember, these guidelines only serve to help you put things in perspective. To save up adequately, you need to diversify your investment portfolio. And here’s where the Moneyfy app by Tata Capital can help. You can use the app to start SIPs, invest in equity mutual funds, governmental bonds, liquid funds, insta redemption funds and more from the comfort of your smartphone. That’s not all. You can even account for your investment horizon, keep an eye on your portfolio, and instantly redeem your funds if needed using the Moneyfy App by Tata Capital.