Saving is important. Those who are part of the FIRE movement and have the objective ofearly retirement he often aims to set aside as much as half – or more – of his salary each month.
However, for the vast majority of the population, saving such a large sum is not feasible.
According to research by Revolut, only the 9% of adult Italians manage to save 500 euros per month or more, il 32% sets aside approximately 100 euros per month, and the 19% it saves nothing.
Three goals for saving
To determine how much you should set aside each month, It is first necessary to understand why you are saving:
1. Saving for retirement
In general, it's a good idea to try to save money from 10 al 15% of your retirement income.
There are many reasons why it is advisable to try to put aside an additional pension: l’increase in the cost of living and inflation which erodes purchasing power over the years, l’increase life expectancy, and the tendency of various governments to postpone the retirement age.
Set aside an additional pension through savings accounts, supplementary pension, or a mix of investments can provide an added level of financial security in retirement.
2. Save for emergencies
It is important to establish an “emergency fund” that you can cover from 3 a 9 months of your living expenses. This will provide you with a safety net in case of unexpected financial difficulties, for example loss of job, medical expenses, maintenance costs for your home or car, legal fees, etc.
In general, an emergency fund is recommended 3-6 months for those with a stable job. If you are a freelancer or have an irregular income, it may be safer to have an emergency fund that covers you from 6 a 9 months of your living expenses.
This because, in the event of job loss or a significant reduction in income, it may take longer to find a new source of income or to adjust to your new financial situation.
3. Save for other expected expenses
In the end, Make a list of major expenses you expect to incur over the next decade.
This includes save for the purchase of a house, for the organization of your wedding, the birth of a child or any other significant expense.
Write down your ideal savings goal and deadline, then divide by the number of months remaining to see how much you should save.
For example, if you want to pay cash for a car from 10.000 euros in five years, you will need to save 167 euros per month.
The rule of 50/30/20
If you are looking for a simpler answer to the question “how much do I need to save in a month / anno“, There is a rule of thumb you could use to get accurate numbers.
The rule of 50/30/20 It's a simple and popular way to manage your budget, dividing it in this way:
- 50% of Necessity: This category includes the expenses you have to pay each month, such as rent or mortgage, the bills, food and transportation costs.
- 30% of Discretionary Expenses: This category includes non-essential expenses that improve your quality of life, like eating out, entertainment, non-essential clothing, travel and hobbies.
- 20% of savings: This category should include contributions to your emergency fund, retirement savings, debt payments and other long-term financial goals.
In short, if you found yourself with 1.800 euros net in a month, following this rule €900 would be allocated to expenses such as food, rent and bills, you would put €360 aside for the future, and the remaining €540 for leisure.
In a year, taking on 14 monthly payment, you would have spent €12,600 on necessities, saved €5,040 for the future, and designated €7,560 for your leisure.
In most cases, be able to put aside the 20% of your savings is an excellent achievement, especially if you don't have an above average salary.
However, being able to increase your savings can be the key to unlocking thefinancial independence, and this is why those who follow the FIRE Movement try to set aside up to half of their income.
Save for FIRE
Those who follow FIRE often try to set aside between 25% and the 50% of your income each month, eliminating unnecessary expenses and living below your means.
Not only, but the savings are invested in order to generate income that accumulates over time.
The goal is to create a source of passive income as an alternative to retirement, so that you no longer have to be dependent on work.
How much do you need to save to generate €1000 per month?
To get € per month with a return of 4%, you should save approx €.
How much should you put aside in a month?
In general, the more you can save, the better.
Said this, for most people, saving a significant portion of your salary can be difficult.
If you have the chance, aim to save around the 20% of your earnings each month following the rule of 50/30/20. But even if I don't manage to put that much aside, don't despair. Try setting yourself the goal 15%, 10%, or even just 5%.
After all, putting aside even “just” one hundred euros a month is better than nothing (you would fit into the 32% of the Italian population!).
If you have above average financial resources and are interested in the FIRE "method"., there's no reason why you can't save more (but without sacrificing your lifestyle!).
Too often I hear FIRE defined as a movement of people living on the poverty line to put aside their 50% (in some cases even the 70%!) of your salary in order to retire early. It is not so.
The principles related to FIRE, such as financial minimalism and voluntary simplicity, they preach theelimination of unnecessary expenses, not the sacrifices.
FIRE preaches saving intelligent, sometimes even extreme, but the main objective is to improve one's economic condition, Not the other.
How much to save, In short
- In general, it is advisable to try to put aside until 20% of your salary every month.
- Unfortunately, over half of Italians manage to save little or nothing (51%). Only the 9% manages to put aside 500 euros per month or more.
- It's important to understand how much to set aside for retirement, for emergencies and other expected expenses.
- The rule of 50/30/20 it can be a simple way to manage your budget.
- Those who follow the FIRE movement aim to save even between 25% and the 50% of monthly income.
The Italian community of the FIRE movement (Financial Independence, Retire Early) to stop working and retire young.