How much do I need to save?

Isn't that always the question?  If I need to save for the future, how much do I need to save?  If you keep up with such things, advice is often to save 5% of your earnings, or 10% or even more.  How much?  5% of my net or my gross?  If I haven't started saving now, how much do I need to catch up?  And when will I know I have enough?  Frankly, the real question is how much do you want to have when you aren't working someday.  How do you figure that out? 


To start you need to look at where you are now, where you are going and how you are getting there.  When you are young, fresh out of school, whether high school, college or grad school, you start out with a lot of responsibility and very little cash.  Perhaps if you parents were planners, they might have already saved some money for you.  Or maybe you had jobs while working through college and you always set aside something.  If you did, you are on the right path.  For the rest of us, though, we need to hoe our own row.


From the time we are born until we die, we need a stream of money to keep us alive.  Some people are born with money while others struggle.  When we are young, we depend on our parents to feed us, clothe us and provide us with a home.  Someday, you get a job and that creates your own wealth stream.  When you start out your wealth is low and your responsibilities are high.  As you grow older, you will hopefully have the opposite, with wealth to live on and fewer people needing your help.


What is wealth?  That is what your money is worth over time plus any earnings you get from it.  Then deduct inflation and taxes.  What is left is your wealth.  It is also a state of mind.  One person might think earning $50k a year is wealthy while someone making four times that might be struggling.


That gets me back to the question of how much.  Once you retire, you may or may not be out of debt.  If you are still paying a mortgage, you will still need to do that, or you will have to sell your home.  Assume for now that whatever you are making now, you will want to get that when you aren't working.  When you start taking money out of savings, the standard amount is 5% of the total.  That lets the remainder continue to grow.  At least it assumes it will grow.


If you are making $50k a year, you will need a million dollars in savings to maintain that lifestyle.  If you were lucky, you might have been able to pick up a pension or two along the way, as I did.  Also, you will be able to get some of your expenses covered with Social Security.  Yes, it will still be around but it probably won't be the plan we know today. 


You have many options to save and I will discuss each one of them.  To get that kind of savings you first need to know how money grows.  Each investment has its risks, as well.  You have to consider market risks, taxes and inflation.  That gets me back to the original question.  How much do I need to save?


If you are grossing $50,000 a year now, that means you are grossing about $4,166 a month.  Then you are also having taxes, Social Security, your 401k, and benefits deducted.  Using this handy website I found,  The Salary Calculator, I come up with a take home pay of $3,276.  To get a gross of $50,000 a year, you do need a million dollars in savings.  From here I will talk about the different options you have and how you need to incorporate them into your financial plan.  Oh no!  He's talking numbers!  Yes, you need to understand some math to get where you want to be.  I will do my best to keep it simple.


I want anyone who reads this to be able to have a plan whether they are 25 or 55 or older.