Key Takeaways:
- Setting aside 10% of your gross monthly income is an excellent way to build your savings.
- Accounts with compounding interest help your savings grow over time.
- The best time to start saving was yesterday, but starting today is the second best time.
The 10% rule is a savings tip that suggests you set aside 10% of your gross monthly income for retirement or emergencies. If you still need to start a savings account, this is a great way to build up your savings.
You should create a monthly budget before starting your savings journey. Starting a monthly budget will help determine if you can afford to put away 10% of your gross monthly income. Adjusting to a budget might take some time, but it’ll be worth it.
Don’t worry; you don’t have to come up with a budget on your own. You can use our practical budgeting template to help you get started.
If you have a lower monthly income, don’t let that discourage you from saving. If you are stretching your budget too thin to put away 10%, try starting smaller and building up to 10%. Start with 4% and work your way to 10%. Save where you can and be mindful of your budget.
Remember that your gross monthly income is the money you make before taxes, insurance, and other deductions.
How the 10% Rule Helps you
What can you use your savings for? You can use it for emergencies, like unexpected car repairs or medical bills. You can save for a down payment on a house. And, of course, it’s always good to save for retirement.
The 10% rule helps you build a better habit of saving and be more prepared for unexpected expenses or long-term financial goals.
How the 10% Rule Works
Starting to save early is a great way to build your savings over time. For example, the median household income in the United States was $70,784 in 2021. If you saved 10% of that each month, you would have $7,000 saved in a year.
If you started using the 10% rule at age 25 and invested 10% of your monthly income in a retirement account, earning 5%. By the time you turned 65, you would have saved $280,000 and earned $1,152,663.63 in interest, resulting in a total of $1,432,663.63 in your retirement account.
An excellent way to set money aside each month while being mindful of your budget is by setting up regular automatic transfers into your savings account. Setting up automatic transfers makes savings simpler. Not having to transfer your 10% each month manually will keep you from forgetting or skipping moving money to your savings.
Where to Keep Your Savings
Now, where should you put that 10%? You can save it in a regular savings account, a high-yield savings account, or even a retirement account. But before you open any of these accounts, check the fees and minimum balances. Remember that having an account with compound interest can help you save even more over time.
Compound interest lets your money work hard for you by growing interest over time. Good examples of compounding interest accounts are certificates of deposits (CDs), savings accounts, interest bearing checking accounts, 401(k) accounts, and investment accounts. With compounding interest, the sooner you start, the better.
It’s important to remember to keep your retirement savings and emergency fund separate. There are better ideas than using your retirement savings for unexpected expenses. Instead, you can put your retirement savings into a long-term investment account like a 401(k). Just be sure to contribute enough to get your employer to match if they offer one. An emergency fund can be kept in a high-yield savings account, which earns interest and is readily available.
Final Thoughts
Yesterday was the best time to start savings, but today is the second-best time. To find more personal finance tips check out our website Personal Finance Archives – Texas Regional Bank. Please schedule an appointment today with one of our bankers to review our savings account options.
FAQs
What is the 10% Savings rule? Key Takeaways: Setting aside 10% of your gross monthly income is an excellent way to build your savings. Accounts with compounding interest help your savings grow over time.
What is the 10 percent savings rule? ›
What Is the 10% Rule of Investing? The 10% rule of investing states that you must save 10% of your income in order to maintain a comfortable lifestyle during retirement. This strategy, of course, isn't meant for everyone as it doesn't account for age, needs, lifestyle, and location.
What is the 10% rule for retirement? ›
Rule of thumb: "Save 10% to 15% of your income for retirement." The detail most people miss here is that a 10% to 15% savings rate—which includes any match from your employer—makes sense only if you start saving in your mid-20s or early 30s.
What is the 10% rule bank? ›
The 10% rule is straightforward: it recommends that you put 10% of your income toward savings and investments ahead of other expenses or goals. That way, you can make sure you keep savings and build a strong base for your long-term financial security.
Is saving 10% of your income enough? ›
At least 20% of your income should go towards savings. Meanwhile, another 50% (maximum) should go toward necessities, while 30% goes toward discretionary items. This is called the 50/30/20 rule of thumb, and it provides a quick and easy way for you to budget your money.
How do I calculate 10% of my money? ›
While 10 percent of any amount is the amount multiplied by 0.1, an easier way to calculate 10 percent is to divide the amount by 10. So, 10 percent of $18.40, divided by 10, equates to $1.84.
What is the $1000 a month rule for retirement? ›
The $1,000 per month rule is designed to help you estimate the amount of savings required to generate a steady monthly income during retirement. According to this rule, for every $240,000 you save, you can withdraw $1,000 per month if you stick to a 5% annual withdrawal rate.
What is a good monthly retirement income? ›
The ideal monthly retirement income for a couple differs for everyone. It depends on your personal preferences, past accomplishments, and retirement plans. Some valuable perspective can be found in the 2022 US Census Bureau's median income for couples 65 and over: $76,490 annually or about $6,374 monthly.
How long will $1 million last in retirement? ›
For example, if you have retirement savings of $1 million, the 4% rule says that you can safely withdraw $40,000 per year during the first year — increasing this number for inflation each subsequent year — without running out of money within the next 30 years.
What happens if you put $10000 in your bank account? ›
If you plan to deposit more than $10,000 at a bank, remember that the transaction will be reported to the federal government. This enables authorities to track potentially suspicious activity that may indicate money laundering or the financing of terrorist activity.
Treasury regulation 31 CFR 103.29 prohibits financial. institutions from issuing or selling monetary instruments. purchased with cash in amounts of $3,000 to $10,000, inclusive, unless it obtains and records certain identifying. information on the purchaser and specific transaction.
How much money can you keep in a bank without questions? ›
The Bank Secrecy Act of 1970 and the Patriot Act of 2001 dictate that banks keep records of deposits over $10,000 to help prevent financial crime. Structuring a deposit is when an individual splits up several deposits so that a single deposit of more than $10,000 cash does not happen.
Should I keep $10,000 in savings? ›
There's nothing wrong with keeping $10,000 in a savings account. But it might not earn you the highest yields. CDs and brokerage accounts could be better homes for your cash in some situations.
How much money is needed to retire at age 65? ›
Experts say investors usually need about 80% of their pre-retirement income in retirement. So if they earned $100,000 per year pre-retirement, they'd need $80,000 per year in retirement. Investors who live well below their means will need less than 80% of their pre-retirement income when they leave the workforce.
What is the 70 20 10 rule for savings? ›
It indicates an expandable section or menu, or sometimes previous / next navigation options. It's an approach to budgeting that encourages setting aside 70% of your take-home pay for living expenses and discretionary purchases, 20% for savings and investments, and 10% for debt repayment or donations.
Should you have $100 000 in savings? ›
While $100,000 is a lot to have in your savings account, it could be the right move if you need that much for your emergency fund and upcoming savings goals. If you want to buy a house, then you may need that much or more saved for a down payment and other costs of homeownership.
What is the 50 20 20 savings rule? ›
Key Takeaways. The 50-30-20 budget rule states that you should spend up to 50% of your after-tax income on needs and obligations that you must have or must do. The remaining half should dedicate 20% to savings, leaving 30% to be spent on things you want but don't necessarily need.
What is the 80 20 10 savings rule? ›
Key takeaways
The 80/20 rule breaks out putting 20% of your income toward savings (paying yourself) and 80% toward everything else. Once you've adjusted to that 20% or a number you're comfortable with saving, set up automatic payments to ensure you stick to it.
