Practical Finance: How much should you be saving?

Everyone knows saving is a good idea, that ain't exactly an earth shattering revelation, but how many people have an idea of how much they should be saving each pay period? Well fortunately….I got you!

To answer that question I could give you the Chartered Financial Analyst spiel of “well that depends on your income level, expenses, risk tolerance, objectives, how much you need for retirement, yadda yadda yadda”, but fortunately there is a simple rule of thumb you could follow.

The personal finance experts and dem usually recommend a 50/30/20 split in which 50% of your after-tax income goes to your needs (food, clothing, shelter, Gin, the sweet dougla in Penal), 30% to wants (Amazon purchases, occasional Double Palm visits, etc) and 20% to savings and retirement. Now you see why I suggested you separate your budget into mandatory vs discretionary expenses?

Great, but what’s the best way to figure out the exact amounts? Excellent question! You can calculate those percentages based on your take home pay, what actually hits your account, but that's misleading and the answer would probably drive you to go drink rum.

Here's the TANA way…

If you've automated your savings by using salary deductions (which I highly recommend), you need to go to your payslip and add back any savings or living expense items that gets deducted prior to the coin arriving in your account. So add back things like insurance, mortgage, loan payments, side-piece apartment rent etc to your income. Now you have a clean-ish total income number.

For the savings number you need to include those deductions for savings products like annuities (not a fan) and any amounts to other savings or investment accounts like sou-sou (traditional not the scam ones). Then use your primary school SEA skills to calculate the percentages. If you need me to tell you how to do that calculation, padna, you have bigger problems.

Now remember, the 20% is a target, so don't beat yourself up too much if you're not there yet. In fact, congratulate yourself because you just went from a rudderless savings ship drifting aimlessly in the financial Caribbean Sea, on your way to cause an oil spill off the coast of Tobago, to a Practical Finance yacht with a North star to follow…a savings ‘dan gorgan’ with an actual purpose.

So…now you know how much you should be saving, yuh feeling like a shiny shilling in a 10 cent party, but I can see the gears grinding in your head. You’re wondering “Tana, what’s the best way to go about saving and where do I put those funds?”. Well I’m glad you asked…but those are topics for another day.

Now go forth and save with impunity!

TANA