Are You Saving Enough? 3 Signs You Are, and 3 Signs You Aren't

Hey guys, what's up? I'm Erin and welcome back to the channel. How do you know if you are saving the right amount? The answer to this seemingly simple question is actually kind of complicated because everyone has different goals and it's influenced by so many different factors. Some of these factors might be your current age and the age you anticipate retiring, how long you expect to live, and without a crystal ball, that one's kind of hard to predict. What kind of lifestyle you actually want to have in retirement, what other income sources you might be able to rely on outside of your investments once you step away from the workforce, and yes, while those are the main ones, there are several other factors to consider. But with that being said, there are some indicators you can look at to assess whether you're on track. Indicators that say yes, you're saving enough and other indicators that say you're not saving enough quite yet. Here are some signs that you are saving enough. One of the great ways to assess whether you are on track with your financial goals is to use a salary multiplier as a guideline. This tool helps to assess whether you're on track based on your current age, your current income, and your current savings level. It helps to assess whether you would be able to replace your income needs once you step away from the workforce, and it helps to answer that question we all tend to have, which is, how am I doing? And the fact of the matter is there's quite a few different salary multipliers that you can use out there. One of the most popular is one from Fidelity, suggesting that you have one times your income saved up by 30, two times by 35, three times by 40, going up by roughly 1x every five years until ultimately reaching the age of 67 with 10x your salary. However, Fidelity is not the only one who offers up these types of benchmark tools. There's another from T. Rowe Price that rather than suggesting a single specific amount, suggests an income saving range, and yet another from Bank of America that suggests a multiple of income to hit based on age ranges. And to be honest, I think any of these can be a useful tool. You should look at them and choose the one that most resonates with you. None of them are perfect, but they're good for measuring your progress against. If you look at Fidelity's, it is the most aggressive, for better or worse, but it is also the simplest and cleanest because it does not offer ranges, but that doesn't necessarily mean it's the best. Some things to keep in mind as you look at these tools is it's based off your present income. So if you had a recent income change, maybe you just had a steep increase in income, it might leave you feeling a little bit behind. Don't stress about hitting these exact figures. Just keep saving and investing as you go forward. An income increase is a total win. Your savings will catch up over time. And each of these tables are based off total investable assets, which means they will exclude your primary residence and only consider what you actually have in brokerage and retirement accounts. And each of these tools is based off income, not expenses. And that too can be an inherent limitation because when it goes to planning your golden years, you're likely going to plan based off your expected expenses, but these are still useful tools. Another sign that you are on track with your savings is that you have a fully funded emergency fund. I am not exaggerating when I say I think having an emergency fund is life-changing. Building a financial safety net that can catch you no matter what life throws at you can bring you great peace of mind. Also, it can help keep you on track with every other financial goal you have. Without an emergency fund, an unexpected expense has the opportunity to derail you no matter who you are, whether you're a modest income earner, a high income earner, or anywhere in between. It has this domino effect. It can leave you going into debt or it can leave you scrambling trying to cover this expense and then ultimately spinning your wheels trying to get out of the hole you just dug. And if you had to resort to debt, like a credit card, getting out of that cycle can be incredibly hard when you're fighting an interest rate of 20 plus percent. Ideally, you want to have anywhere from three to six months worth of expenses saved up in your emergency fund and kept someplace safe and easily accessible, like a high yield savings account or a money market account, account type like that. Taking advantage of a retirement online calculator allows you to get a little bit more personalized with your approach. You can actually enter numbers that are personalized to you, your current income, how much you currently have saved, your age now, the age you want to retire, your income sources that you might have in retirement, whether that includes social security and a pension. The more information that you can put into these calculators, the more information you can get out of them. You want to give as much information as you can because it gives you more information to work with. A tool is only as useful as the information you can give it. And there are so many free online calculators out there that allow you to add this level of personalization. One that I found that I really like is the AARP Retirement Calculator, and I will link that one down below. But one of the reasons I really like this one is that it allows you to put so much information in, like your marital status, age, income, present savings, social security, lifestyle you expect to have in retirement. And the results indicate in detail where your income in retirement will come from, whether that is from your investment, social security, or a pension, or identify an income shortfall, which can be really helpful to generate a more complete picture. I think taking advantage of these tools can help keep you forward-looking, and it can help you identify where you may need to course correct on your journey. So I think it's a really good idea to bookmark one of these calculators and periodically check your numbers, maybe every time you run your net worth, because these numbers are going to change with time. Your approach is going to change with time. What they look like at 20 is going to be different than at 30, or at 40, and so on. So I think being able to reference these numbers can help you identify where you may need to change and be a little bit flexible with your approach. On the flip side, here are some signs that you might not yet be saving enough. Failing to use your accounts to their full potential can be a clear indicator that you are not saving as much as you should be. This might look like taking a withdrawal from your 401k account or your Roth IRA account to cover expenses that pop up, but these accounts are meant for long-term growth. If you take withdrawals from them, you're actually hurting your future self. You're hurting your compounding potential. These accounts are not meant to cover today's expenses. Your 401k account is not a checking account. This could also manifest through tapping into your emergency fund to cover non-emergency related expenses. Your emergency fund is there to cover true emergencies. What happens if you deplete it and then find yourself in a financial bind? What happens if you lose your job or have an unexpected expense? You'd likely have to turn to debt. And it's not necessarily just taking money out of accounts. It could just be failing to capture the full benefits of accounts, like not keeping your emergency savings in a high-yield savings account, and instead utilizing a traditional bank account, and missing out on capturing a much higher rate of return, or not contributing enough to your employer-sponsored retirement plan to capture the full match. When it comes to your accounts, you want to utilize them to their full potential to make sure that you are capturing the maximum benefits. Ideally, investment accounts are set aside for your future. When it comes to credit cards, those should be paid off every single month. When it comes to your savings accounts, you want to make sure you're capturing your rate of return that is competitive in the marketplace. In a way, this is checking off your financial checklist. When your income goes up, so too should the amount that you're saving. The last thing you want is to grow in your career and to still be saving the exact same amount as when you started your career. The easiest way to be sure that you're going to be contributing more to your savings and investments over time is to make sure that you're contributing a percentage of your pay to your investments, rather than a fixed dollar amount. Because that way, anytime your pay increases, so too does the total dollar amount that you're contributing to your investments. Also, anytime you get a pay increase, you can take a moment to increase your contribution percentage. You don't have to put your entire pay increase into investments, but just dial up that percentage to your contributions just a little bit. That means that you're going to be increasing your contributions to investments, but it also allows you to enjoy a little bit of that pay increase as take-home pay. Many plans out there actually have an auto-escalation feature, which means that they will dial up how much you're contributing to your investments up to a certain point. And this can be really beneficial add-on to plans, but here's some great news. According to the National Association of Plan Advisors, for the full year of 2023, of the people who increased their contribution, 27% proactively increased their contribution rate, meaning that roughly a quarter of all people independently increased their contribution rate on their own. And that's great news. Finally, needless to say, if you are living paycheck to paycheck, you are unlikely to be saving enough. Because quite frankly, if you are living paycheck to paycheck, you likely don't have enough breathing room in your budget to be contributing a significant amount to savings or investments. So one of the things you really need to do if you find yourself in this situation is find a way to create a little bit of flexibility in your budget. This could be addressing your expenses and finding areas where you can make cuts, working yourself into a higher paying position, or taking on some side work. Maybe it's a combination of all of these. Either way, it's pretty darn difficult to get ahead financially if 100% of your paycheck is going to funding your lifestyle. And if you're trying to best gauge where you stand, check out this video where I talk about how much experts suggest that you should have saved up at various ages. Do you think you're on track to hit your goals? Leave your thoughts in a comment down below. I post new videos every single week. If you got anything at all out of this one, please give it a like. If you're new here, please consider subscribing. Or if you know of someone who might get something out of this type of content, please consider sharing. I'll see you soon. Bye.