The Money Muse

When it comes to saving for the future, there’s no one-size-fits-all answer. Financial experts often recommend a wide range of savings rates depending on your goals, lifestyle, and time horizon. But if you’re serious about achieving financial independence, retiring early (FIRE), or are just aiming to give yourself more flexibility down the line, it’s important to think about how much of your income should be saved and invested each month.

For most people, the general advice is to save between 10-20% of your income. While this can work for many, it might not get you to your long-term goals as quickly as you’d like. Personally, I’ve set a much more aggressive goal for myself, targeting a savings rate closer to 50%. Let me break down what I’ve learned about saving a significant percentage of your income and why it matters.

The 25% rule.

I’ve found that a lot of advice about saving is based on general benchmarks, and one that stands out to me is the 25% rule. This rule, popularized by financial gurus like The Money Guys, suggests saving 25% of your income for long-term financial security. This is actually an aggressive savings rate in the personal finance space, but if you’re really trying to fast-track your financial independence or retire early, it’s a bit on the conservative side.

The 25% rule is generally tied to the idea that saving 25% of your income can help you build enough wealth to cover future expenses, assuming you’re also investing wisely. While I appreciate the 25% rule, I believe that it’s not aggressive enough for people with FIRE aspirations. If you’re truly aiming to reach financial independence early or want the option to stop working on your terms, you’ll likely need to save and invest more than that.

Why I aim for 50%.

As someone who has FIRE aspirations (or at least wants to build enough wealth to give myself options and flexibility in the future), I’ve set a much higher savings goal. I aim to save 50% of my income. This might seem extreme, but the way I look at it is simple: the more I save now, the sooner I can achieve financial freedom and the greater my flexibility in the future. I’m still able to enjoy things like traveling and enjoying my city, so I don’t feel like I’m sacrificing much with this savings rate. Someday, 50% may no longer be possible, but I’m going to do as much as I can as early as I can to set myself up for success.

Saving 50% of your income might require cutting back in some areas, but it can also set you up to achieve more in the long run. If you’re serious about retiring early or creating financial security in a short amount of time, this higher savings rate makes a huge difference in terms of growing your wealth.

Breaking down savings goals.

Here’s how you can think about your savings rate based on your goals:

• For long-term security (10-15%). If you’re just starting out or aiming for a more traditional retirement age (around 65), saving 10-15% of your income is often the baseline that most experts recommend. This will likely get you to a comfortable retirement, assuming you’re also investing consistently and growing your money in the market over time.
• For financial flexibility (15-25%). If you don’t want to fully retire early but want more flexibility in your life, say to reduce working hours or switch careers, saving around 15-25% is a good place to start. It will give you a strong cushion for the future while also allowing you to enjoy your present life.
• For financial independence and early retirement (25-50%). If you’re targeting FIRE, you’ll need to think about saving a higher percentage. The 25% rule could work if you’re comfortable with a slower pace, but in order to have more options sooner, you may want to aim for at least 50% of your income. This aggressive savings strategy can potentially allow you to retire earlier, or at least buy yourself options and freedom.
  For those working toward FIRE, there’s an important equation to keep in mind: the more you save, the sooner you can afford to leave your job. The traditional FIRE target is to accumulate 25x your annual expenses, but saving more than 25% can significantly speed up that timeline.

How to make saving 50% work.

Saving 50% of your income isn’t easy, but it’s definitely doable if you plan ahead. Here’s how I’ve managed to make it work:

• Automate your savings. I have my savings and investments automatically deducted from my paycheck. This way, I never have to think about it, and I don’t have the opportunity to spend it. Paying yourself first is key to consistently hitting a high savings rate.
• Cut unnecessary expenses. It’s important to take a hard look at your expenses and find ways to cut back. For me, it’s about focusing on what truly brings value to my life, while reducing spending on things I don’t really need. Small changes, like cooking more meals at home and cutting back on subscription services, have helped me increase my savings rate.
• Increase your income. Along with cutting back, finding ways to earn extra money has been a huge boost to my savings rate. Whether it’s through a side hustle or asking for a raise, having a higher income gives you more room to save and invest.
• Live below your means. Living below your means is the most important factor in achieving a high savings rate. It’s all about maintaining discipline and not getting sucked into lifestyle inflation, especially as your income increases over time.

In the end, how much you should save depends on your own financial goals, but saving at least 25% of your income is a good baseline. For those of us with FIRE aspirations, saving more aggressively is the best way to build financial security faster. The more you save, the sooner you can achieve the flexibility and financial freedom you desire. Remember, the road to financial independence is a marathon, not a sprint. Staying disciplined and focused on your savings goals, even if it requires some sacrifice, will pay off in the long run.