How much should I be saving?

The Covid crisis taught us that no one is truly immune.  Make sure you are saving a good amount of money to keep your family financially secure.

I always recommend at minimum that you save 15% of your salary to put into retirement accounts, although it potentially means 40 years of work.  (If you start at age 25, you can retire at age 65.  Fair enough.)  Always take advantage of any employee matching programs, and contribute the minimum required to get the full match.  There’s not a one-size-fits-all answer for an overall savings rate, so let’s talk about what works for your situation.

How many more years do you want to work in your job?

This is a very personal decision, and will drive the answer to what your savings rate should be.  Financial freedom may not be everyone’s short term goal, but make sure an eventual retirement is on your radar.  The best thing you can do is start saving and investing early.

The required savings rate is a function of math with a lot of variables to the equation.  Those include your savings rate, your annual spending, market returns, your withdrawal rate, and your current savings.

Basic timelines when you’re starting at zero:

  • 40 years until financial freedom require only a 15% savings rate.
  • 35 years until financial freedom require about a 20% savings rate.
  • 30 years until financial freedom mean about a 25% savings rate.
  • 25 years until financial freedom mean a 30-35% savings rate.
  • 20 years until financial freedom mean a 40-45% savings rate.
  • 15 years until financial freedom mean a 50-55% savings rate.
  • 10 years until financial freedom mean about a 60-65% savings rate.
  • The more you save, the faster you’ll reach financial freedom.


You can always get lucky (the market returns are better than average, you inherit extra money, etc.) which means an earlier exit is possible, but I prefer not to leave my future up to chance.  If you retire with 25x your annual spending in invested assets and live off 4% of your portfolio per year, statistics are in your favor.

For a more in-depth analysis or for those wanting to cut their time even shorter, see Mr. Money Mustache’s The Shockingly Simple Math Behind Early Retirement.

What is your current savings rate?

The Basic Formula

(Total Income – Total Spending) / (Total Income)

(Total income minus total spending, then divided by total income)

If this number is negative, you’re digging yourself into a hole and need to cut back spending or increase your income immediately.

There are all sorts of equations of variations to figure out your savings rate.  Some include tax, and some don’t.  Some consider employer contributions, and some don’t.  Some favor take-home pay, and some favor gross.  One person can have a dozen different savings rates that mean different things, but it’s fine as long as they are all positive.

My Preferred Formula

I’m mindful of my spending and make sure it never exceeds my income.  Rather than add up all my spending for the year, I prefer to use what I consider the simplest approach for my situation.

(Total Dollars Consciously Saved for the Long Term) / (Total Salary)

My total dollars consciously saved include:

  • Money saved in taxable/savings/brokerage accounts
  • Money put into retirement accounts (401k, HSA, IRA, etc.)
  • Money paid into the principal balance of mortgages/rental properties (not interest). This is money you’d be likely to get back with the sale of a house.  (However, your house doesn’t count toward your 25x assets if you aren’t willing to sell it later, so you can exclude this if you prefer.)


I don’t include:

  • Employer matching/contributions. They still count toward your 25x assets saved number if they are vested, but a lot of employers have vesting schedules or other complicated pieces that you don’t have control over, and if you leave the company, you may lose them.  Once I’m 100% fully vested, I will start to count this.  In the mean time, it doesn’t hurt anything to save extra early since it has so much time to grow.
  • My checking account or emergency/slush fund. I didn’t spend the money, but the balances fluctuate and aren’t meant for long-term savings.
  • My savings for planned spending (like a vacation). Think long term.
  • Principal payments for a car loan, student loans, or other debts. Decreasing your liabilities means increasing your net worth, but it’s generally not building an asset.  Paying debts off are still important steps toward financial freedom, and are a great accomplishment!  When you pay them off, your spending will decrease and you will bring yourself closer to financial freedom.  If you start saving the money you were putting toward monthly payments instead of allowing lifestyle inflation, your path to financial freedom will shorten dramatically.


You can choose to use your total gross salary or your salary net of taxes.  I use my gross salary since it’s easier.  (Yep, I’m just lazy.)  However, it also makes sense to use a net salary since I think my taxes will be lower after I quit working, especially since most of my savings are in Roth accounts.  This is a personal decision.  Your choice!

Side Note on Side Hustles/Income Streams

You can choose to include your side hustle income or other income streams as part of your salary if it’s solely meant for earning extra income, or you can exclude it if you consider your side hustle more of a fun hobby that you would continue even without your salary (since it would still be an income stream even if you quit your day job, and therefore doesn’t need to be “replaced” with your assets).

If your side hustle or income stream allows you to save 100% of your salary, it’s OK to quit your day job at whatever point you want.  You’re making ends meet without it!  You can continue to fluff a nest with your salary, or you can say goodbye to the corporate world.

Are you where you want to be?

Be honest.  If you are where you want to be, kudos!  I personally know there are areas I’d like to be improving.  If you aren’t where you want to be, you have three choices.  Make more money, spend less, or do a combination of both.

If you are not saving any money at all and have no income streams to replace your salary, expect to be working forever.  You may be able to retire on social security if it’s still around, but it definitely won’t allow you to maintain the lifestyle you’ve likely been accustomed to.

I love my job and want to work forever.  Do I still need to save 15%?

Yes.  There’s this little thing called reality.  Many people assume they will work well into their old age, only to have health concerns stop them in their tracks.  Then they are left with only Social Security (which may or may not still be available) and whatever they’ve saved.  If you’ve saved 15% every year over the course of 40 years, you are likely to have a decent nest egg that will allow you to survive, although it may not be as comfortable as you had intended.  If you make it to the end of your life and are still busy working, that’s awesome as long as it’s what you want to be doing, but don’t use it as an excuse not to save now.

Seriously.  Don’t screw over Future You.

Just don’t.  You may not think you care right now, but Future You will thank you.  At least save and invest 15% of your salary.  If you aren’t there yet, focus on small cuts you can make and gradually increase your savings rate. You’ve got this!