How much do we need to Save for Future

Courtesy : Utvi.com

How many times have you questioned yourself about your paycheck-to-paycheck existence? The urge to save may be present but most of us lack the right direction. The niggling question that keeps haunting us is what percentage of income should someone save in order to be considered financially responsible?

Although most of us are wary of spending these days thanks to the economic downturn, we still don’t know how much we should be saving on a monthly basis. Especially for those of us who have just started working the concept of saving - is something beyond comprehension.

So here’s an easy formula to help you to figure out your plan of action: Elizabeth Warren’s balanced money formula. Elizabeth Warren is the Leo Gottlieb Professor of Law at Harvard Law School and is also the chair of the Congressional Oversight Panel created to oversee the US banking bailout, formally known as the Troubled Assets Relief Program.

This is a simple formula meant to set aside at least 20% of after-tax income for Savings, keep Needs below 50%, and use the rest for Wants:

In other words, your target savings rate should be 20% of your income. This formula is a simple way of taking care of everything – your needs, your wants and your savings. It can also be customized according to your spending patterns and from month to month.

It is as simple as doing what works for you. Each of us is in a different situation, and while it might be financially responsible for one person to save 20% of the income, for you that number might only be 5%.

In the end, it’s not important what percentage of your income you save, but that you develop the habit. Build an emergency fund. Develop a retirement savings regimen. When you’ve done these two things, look for additional ways to save. Most of all don’t make excuses. We all have things we’d rather spend our money on; if your goal is to be financially responsible, make saving a priority.