Lock In A Percentage Of Your Income
Most financial planners advise saving between 10% and 15% of your annual income. A savings goal of $500 amount a month amounts to 12% of your income, which is considered an appropriate amount for your income level.
Assuming your income increases by an average of 4% per year, this automatically increases your savings amount by 4%. In 10 years, your annual savings amount, which started out as $6,000 per year, will increase to $8,540 per year. By the time you are 55, your annual savings will increase to $16,000 per year. This is how you reach your goal of $1 million at age 65 starting out on a $50,000 per-year income.
Bottom Line: How Much Should I Invest In Stocks
You should aim to save 15-20% of your income each month.
You donât necessarily have to invest all of these savings, but aiming to put around 10% of income towards your retirement goal is a great starting point.
In general, long-term savings should be invested in stocks, while short-term savings should be kept in a bank account.
Your specific strategy for how much to invest will depend on these factors and more:
- Your income level
- Your current amount of savings
- How much extra money you have each month after your expenses
- Whether or not you have an emergency fund
- What your financial goals are
- Whether or not your employer offers 401 matching
- Whether or not you have high-interest debt to pay off
Are You Ready To Invest
Before choosing to invest your money, remember that theres always the risk that your investments can go down as well as up. That means you could lose money.
If youre not sure if youre ready, read our beginners guide to investing
Choosing whether investing is right for you also depends on:
- how much cash you have available
- how old you are
- what your personal circumstances are.
You also need to consider your goals specifically if theyre long, short, or medium term:
- short-term goals are things you plan to do within the next five years, such as take a holiday
- medium-term goals are things you plan to do within the next five to ten years, such as save for a mortgage deposit
- longer-term goals are ones where you wont need the money for ten years or more, such as a retirement fund.
For your short-term goals, the general rule is to save into cash deposits, such as bank accounts.
The stock market might go up or down in the short-term, and if you invest for less than five years you might make a loss.
For the medium-term, cash deposits might sometimes be the best answer. But it depends on how much risk youre willing to take with your money to achieve a greater return on your investment.
For example, if youre planning to buy a property in seven years and you know youll need all your savings as a deposit and dont want to risk your money, it might be safer to put your money into a savings account.
Recommended Reading: How Can I Start Investing In Real Estate
Find A Great Roofing Contractor For Your New Roof
Now you know the 4 reasons you need to invest in quality when its time for a new roof. Im not saying you have to break the bank to get a quality roof replacement.
But dont go into the process with the mindset of finding the lowest price possible. Thats why its important to talk to multiple contractors and find a company that fits a reasonable budget range.
Unfortunately, finding a reputable roofing company is harder than you think. And Im sure you noticed as you read through this article that a roofing contractor has a huge impact on a roof replacement.
This makes finding a great one in your area crucial. Well, I want you to have the power to spot a reputable roofing company out of the sea of options.
Thats why I wrote another article that gives you the 7 tips every homeowner needs to find a great roofing contractor.
The team at Bill Ragan Roofing has provided high-quality roof replacement to thousands of homeowners in Nashville and surrounding Middle Tennessee areas. You can count on our workmanship to maximize your roof investment, and we back it up with a lifetime craftsmanship guarantee.
Check out 7 Tips to Find a Great Roofing Contractor so you can find a reputable company in your area for all of your roofing needs.
Having An Emergency Fund
But, before you start investing, itâs first a good idea to build an emergency fund that you can tap if you ever need cash. If you ever have medical bills or unexpected home- or auto-related expenses, having an emergency fund can help you avoid accumulating large credit card balances as a result of these unforeseen expenses.
Itâs generally good to have three to six months of income set aside in a liquid account that you can access quickly. But, this really depends on your income and lifestyle, the potential size of costs you might incur without warning, how quickly you can cut other expenses if the need arises. Still, a few months is usually a good rule of thumb.
As you build your emergency fund, itâs a good idea to have at least part of it in a bank account that can be accessed immediately if necessary. Once youâve accumulated more than one monthâs income, you might consider putting some of it in an investment account. If you go this route, be sure to use less volatile investments and have your bank account linked to your investment account so you can get your money within seven to 10 days if you need it.
Also Check: How Do I Invest In Nike Stock
Why Does Investing Matter
Investing allows your money to work for you.
When you have money invested in quality assets , those investments will grow over time â making you more and more wealthy as time goes on.
Consider this example:
- $200 per month saved for 40 years would result in $96,200
- $200 per month invested for 40 years would result in $1,119,121
Estimate your own investment growth using this investment calculator.
In both cases, you would have saved the exact same amount of money. But through the power of compound interest, investing would result in more than 11x as much money after a 40-year period.
Want to learn more about investing, and get exclusive recommendations on the best stocks to buy? Check out Crux Investor.
How Can I Put More Money In Savings
Heres the thingyou can do all of this stuff weve talked about, but if you dont actually have a plan for your money, then you wont get very far. And lucky for you, we know just the plan. Ramsey+ will give you all the tools you need to save more from your paycheck each month, pay off debt, and start living the kind of life you want. Youll get access to the premium version of our budgeting app, EveryDollar, and our tried and true course Financial Peace University. With these things at your fingertips, youll be able to put more of your paycheck toward your saving goals!
About the author
Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners.
Recommended Reading: Where To Invest Roth Ira
What Are Your Goals
Rather than relying on a rule of thumb that may or may not apply in your individual situation, it makes sense to get a little more personal with your investing efforts.
Instead, think of your goals. Would you like to be able to pay for your child’s college education? You need to figure out how much time you have before your child goes to school and estimate a reasonable rate of return for your investment portfolio. Then, you need to calculate how much you should save each month if you want to increase the chances that you will reach your goal.
This concept works with retirement as well. Think about what you want to accomplish with your money. What is a reasonable rate of return to expect over the time period that you have to save?
Once you know this information, you can calculate how much you need to save each month to reach your goal. There are numerous online compound interest calculators that can help you figure out how much you need to set aside to reach your goals.
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2. Keep saving
Now that youve got an emergency fund, its a good idea to save a bit more if you can afford it. Set yourself savings goals and put away enough to buy what you want. This could be a house deposit, a wedding, or a trip.
You could also start to think about investing your money if you dont need the money in the next five years.
Recommended Reading: How To Invest Into Roth Ira
Easy Ways To Boost Your Savings
Here are some simple ways to help you start saving up.
Automate your savings: Set up an automatic savings plan so that a small, set amount of money is moved from your checking to your savings account on a regular basis. Even sparing $25 per month will give you a starter savings of $300 at the end of the year. Saving a small amount of money now, little by little, could add up to a significant sum in the future.
Rethink direct deposit: Instead of having your entire paycheck directly deposited into your checking account, have your employer deposit a portion of your check into checking and the rest into a savings account.
Put your spare change to work: There are apps that will take spare change on any amounts paid on a debit card and put them into savings accounts or even invest them. Those little amounts can add up over time.
Dig through the couch cushions: Kidding! Sort of. Do you have a jar of loose change cluttering up the top of your dresser? Lug it to a coin sorting machine every so often, and then put that amount into savings. You may be surprised at how much you have.
Most importantly, consistency is key. No matter what percentage of your salary you save, if you deposit small amounts regularly, you may be able to build up a large chunk over time to achieve your goals.
Youll Have Better Warranty Options
Every new roof should get these warranties after installation. But youll have better warranty options if you invest in a quality roof system.
If you get an architectural asphalt shingle roof and use all of the manufacturers roofing components, you can get an enhanced warranty. This non-prorated material warranty guarantees the manufacturer covers labor, materials, and dump fees for 50 years if the materials are defective.
On the other hand, I can guarantee you wont qualify for the enhanced warranty by getting a cheap roof system. Even if you get this enhanced warranty, itll most likely be voided due to improper installation or inadequate attic ventilation because you paid for cheap labor.
Cheap labor and materials also impact the type of workmanship warranty you get. If you hire a company with the lowest labor costs, youll get anywhere from a tail light warranty to a two-year or possibly a five-year warranty.
These contractors won’t give more than a five-year workmanship warranty because they don’t want to be responsible for something that’ll have continuous problems down the road. Their main goal is to get your new roof through the warranty time frame before it fails completely, and theyre on the hook to fix it.
Recommended Reading: Where To Go To Invest In Cryptocurrency
What Happens If You Over
While it may seem like a good idea to invest as much money as you can for your retirement, there are consequences to over-contributing. The Canada Revenue Agency limits the investment you can make to your RRSP due to the tax savings. Which means you may have to pay for going over the limit.
If you do go over your contribution on accident, the CRA gives you a free pass for over-contributing $2,000. However, once you use that cushion up, it will cost you for over-contributing. Once you pass the $2,000, they charge a 1% fee every month for your overpayment. Once you withdraw the extra funds, there is no more penalty. However, there are also consequences for early withdrawal .
How To Invest When To Withdraw
Pfau’s research highlights two other important variables. First, he notes that over time the safe withdrawal ratethe amount you can withdraw after retirement to sustain your nest egg for 30 yearswas as low as 4.1% in some years and as high as 10% in others. He believes that “we shift the focus away from the safe withdrawal rate and instead toward the savings rate that will safely provide for the desired retirement expenditures.”
Second, he assumes an investment allocation of 60% large-cap stocks and 40% short-term fixed-income investments. Unlike some studies, this allocation doesnt change throughout the 60-year cycle of the retirement fund . Changes in the persons portfolio allocation could have a significant impact on these numbers, as can fees for managing that portfolio. Pfau notes that “simply introducing a fee of 1% of assets deducted at the end of each year would increase the baseline scenarios safe savings rate rather dramatically from 16.62% to 22.15%.”
This study not only highlights the pre-retirement savings needed but emphasizes that retirees have to continue managing their money to prevent spending too much too early in retirement.
Also Check: Investing In Real Estate Rentals
A Taxing Decision: Rrsp Or Tfsa
RRSPs and TFSAs are both tax-free savings options. However, they differ in the features they offer. An RRSP is more of a retirement savings account. Early withdrawals can lead to financial consequences. TFSAs are also long-term investment options. However, they offer a much more flexible withdrawal policy. Unlike RRSPs, TFSAs do not give you a tax deduction.
There are pros and cons to both savings options. Many choose that have both investment accounts gives them the best of both worlds. An RRSP compounds your money over a long period of time and gets you a tax deduction. However, income tax applies when making a withdrawal. There are also consequences to withdrawing early.
A TFSA may have a lower interest rate and does not offer tax savings. However, you can withdraw your money anytime without having to worry about any penalties or taxes.
Next Steps To Consider
This information is intended to be educational and is not tailored to the investment needs of any specific investor.
Diversification and asset allocation do not ensure a profit or guarantee against loss.
Investing involves risk, including risk of loss.
Target Date Funds are an asset mix of stocks, bonds and other investments that automatically becomes more conservative as the fund approaches its target retirement date and beyond. Principal invested is not guaranteed.
Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.
With respect to federal taxation only. Contributions, investment earnings, and distributions may or may not be subject to state taxation.
Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917
How To Save For Retirement In Your 50s
By the time you reach your 50s, youre heading for the home stretch. That doesnt mean, however, that youre done working or saving. This is the right time to pay off your mortgage and ensure your overall debt is at a minimum. Stay the course with your savings and speak to a financial advisor about gradually adjusting your investment strategy as you near retirement.
Emergency fund: Keep your emergency fund topped up, especially if unexpected expenses have come along.
Additional savings: Invest additional savings once you max out your contributions to individual and employer-sponsored retirement plans.
Educational savings: Once the kids head off to college, tap these funds to pay for college. Funnel the amount you were saving for college expenses into your retirement and taxable brokerage accounts.
Retirement savings: Review your contribution percentage annually. Once you turn 50, youre eligible for an increased annual contribution limits in tax-advantaged retirement accounts. If youre behind on your goals, take advantage of these increased thresholds. By the time you turn 55, aim to have seven times your current annual salary in retirement savings across all of your savings and retirement accounts. By the time you turn 60, you should have eight times your annual salary in retirement savings.
Catch-up tip: If you need some extra cash to sock away, you explore seasonal employment around the holidays to up your annual retirement savings rate.