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10% for what?

July 21, 2008 By Megan Smith

I have a small financial confession to make. I have no idea what it means to save 10% of your income.

Ok, let me clarify. I know what 10% of my income is. And I know that financial advisors seem to say that you should pay yourself first and save 10% of your income. My question is this: What is that 10% for?

Does that 10% include the 5% I put into retirement savings? Or should I be saving 10% in addition to that?

Let’s assume that it doesn’t include the retirement amount. Let’s also assume I have an emergency fund big enough to cover expenses for an entire year. So every month I am putting away 10% of my income for… what? Can I use that money towards buying a house? Is it for use before the emergency fund gets touched? Can I take money from it to pay for a vacation? Is it also for retirement purposes? What is this 10% for?

Maybe this is a dumb question. It’s one of the simplest rules of personal finance. I understand that saving is good. But what I don’t get is if this rule allows me to ever touch that money, and if so, when and why.

Filed Under: savings Tagged With: 10%, savings

Comments

  1. Bcarter says

    July 21, 2008 at 8:06 am

    I think the 10% includes retirement savings. They say you should work on an emergency fund first and then work on retirement. Do I follow this, no. Currently I save 6% of my income and my employer matches 1/2 of that.

    Good luck with your goals, it’s difficult to get to where we want to be, but I know the end will be worth it.

  2. Kacie says

    July 21, 2008 at 3:32 pm

    I’m not entirely sure. I think if you already have an emergency fund, saving 10% for other goals is a good way to make sure you aren’t spending more than you earn.

    I don’t know if that rule of thumb also includes retirement.

    I guess the best thing to do is look at your personal situation and decide how much to save.

  3. Meadow says

    July 21, 2008 at 4:43 pm

    What else would you like to have in your life? A car? A home of your own? More education? A trip overseas? A wedding? Children someday?

    These are all aspects of life that you might want to save 10% of your income for.

    Just some suggestions! 😉

    Meadow

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