The Myth of the 10% Savings Rate

Saving money. How much money should you be saving?

At some point or another, you’ve probably heard savings advice about setting aside 10 percent of every paycheck or something similar.

Maybe you followed that advice, but you still feel like you can’t afford the car you want or the house you want or the family you want to have.


The reality is that for most of us, a 10 percent savings rate just isn’t going to cut it.


Just think about it… How much is 10 percent of your monthly take home pay right now?

Now multiply that by 12, then multiply that by 5.

Now compare that sum to the cost of all of your 5-year goals.

For example, if you take home $30,000 a year after taxes, 10 percent of that would be $3,000. (For the sake of simplicity, I’m going to be dealing in after tax dollars today).

So at a 10 percent savings rate, you’d have $15,000 in 5 years.

If your goal is to buy a home in 5 years, you’re probably going to need more than $15,000 for the down payment. And that doesn’t even factor in savings for emergencies, retirement and other milestone money goals.

In other words, for most of us to achieve the goals and lifestyles we really want, we need to be far more aggressive in our savings rates.


A 10% savings rate isn’t always enough to afford us the financial security we need while also affording us the lifestyle we want.Click To Tweet



How Much Money Should I Be Saving?


Though a 10 percent savings rate may be a popular savings norm, it’s probably not a savings rate that will afford you your dreams, it’s not a savings rate that will allow you to stop working or retire early or achieve the financial goals that matter most to you.

Don’t believe me? You might be right, but do the math for yourself.


If you maintain your current savings rate on your current take home salary, how much will you have saved in one year, five years or ten years?


And how does that sum compare to the cost of the lifestyle you want to live and the money milestone dreams you want to achieve?

Now how much more could you afford with a 20 percent savings rate or a 50 percent savings rate?

As you project these new sums, you’ll start to see how much more of your 5, 10 and 20-year goals upping your savings rate can afford you. Which can help make saving money a true priority.


Maybe, instead of shooting for an arbitrary savings rate like 10 percent, we can reframe our savings rate within the context of what we actually need to achieve our savings goals.


I Can’t Even Afford a 10% Savings Rate


I want to hit the pause button for a second here to address those of you who feel that any savings rate is out of reach for you right now. You might be at a point where a 10 percent savings rate would be a major win.

If you can’t save 10 percent of your pay right now, please don’t be discouraged.


My objective here is to challenge the notion that a 10 percent savings rate is the ultimate end goal when it comes to saving money, not to make you feel guilty if you’re falling short of that.


If you’ve just graduated or you’re paying off a lot of debt or you’re recovering from a job loss or a divorce, it’s going to take some to get your finances in order and start saving.

In such cases, establishing (or re-establishing) the habit of saving is more important than the actual amount you save.


You might not be able to save 10 percent of your paycheck, but can you save 2 percent or 1 percent or even just $5 each week?


You can always increase your savings contributions as you’re more able – when you get more of your debt paid off or you get a new job or you score a raise – but having the savings habit already in place, (no matter how small your contributions currently are), will serve you when the time to scale those contributions comes.

If you’re not saving at least 10 percent of your paycheck for other reasons, (like overspending), it might be time to get serious about learning to live within your means.

Here are 10 strategies that can help curb your overspending, but more importantly, consider changing the way you think about saving money…


Why Saving Money Is So Hard

When we think about saving money, we tend to think about it through the framework of short-term sacrifice as opposed to long-term gain.Click To Tweet


For example, when I was saving money to fly to Europe a few years ago, I struggled with the same day-to-day spending habits that often get in the way of my savings…

Not wanting to wait for the subway after a late night out and splurging on a cab, or opting to pick up some of my favorite tacos for lunch instead of meal prepping ahead of time.

But then I started to think about what those choices were costing me – that $5 here, $10 there, $75 there – and as I started adding up those expenses, I saw that they were literally costing me the savings I needed to afford my trip to Europe.

So I printed out a picture of my destination and I put it in my wallet wrapped around my cash and credit cards, so that every time I considered a purchase, I had to also consider the trade off of not saving up for my trip.

I had to ask myself, am I really willing to give up this savings for my Eurotrip for some tacos I don’t really need right now?

Within that framework, saving money was no longer about what I had to give up, it was about what I stood to gain.


When I zoomed out to look at the big-picture, it was easier to see what saving money afforded me, and thus, it was easier to make choices in service of my savings.


When we look at saving money this way, through the lens of long term, It’s not the lifestyle upgrades and indulgences we skip in the day to day that feel like a sacrifice.

It’s the major money goals, like buying a house or helping our kids pay for college that we’ve pushed back or off altogether, that are the real sacrifice.

So if your primary struggle in increasing your savings rate is overspending, start by defining what saving a greater percentage of your earnings would afford you – financial independence, more flexibility to take time off and be with your kids, a year off to travel, the ability to buy your home in cash?


Getting specific about what it is you want to achieve with your savings can help keep you commit to actually setting that money aside.Click To Tweet


What to Do When Your Goals and Your Savings Rate Don’t Align


If you can’t afford to fund every one of your future goals by maintaining your current savings rate, determine which savings goals you can afford to fund based on your savings calculations, prioritizing the goals that are most important to you and realistically fall within your future means.

Alternatively, (or additionally), consider how much more increasing your savings rate might afford you.

I know that a 40 percent or 50 percent or even a 60 or 70 percent savings rate sounds crazy high, especially when you’re used to hearing advice like, set aside 10 percent of every paycheck, but remember, it’s all about what that money saved enables you to do.


If we’re going to get real about the things we want, we need to get real about what it’s going to take to get there.Click To Tweet


How to Radically Increase Your Saving Rate


Saving 40 percent or more of your salary is no easy feat for most of us, but for the sake of challenging your perspective, stick with me here.


I’m going to ask you to completely disrupt your current status quo.


That is, forget everything that you think you need or consider essential, and imagine an entirely different lifestyle in which you choose to have a higher savings rate, like 40 or 50 or 60 or even 70 percent.

If you don’t make much money, or your supporting a family on one salary, or your combating a costly medical condition, obviously this will be far more challenging. Identifying resources for support and opportunities to increase your income will also be essential in enabling you to scale your savings contributions.

But remember, this is just an exercise, allow yourself to really go there and imagine what it might look like to live on just 60 or 50 or 40 or 30 percent of your income each month, so that you can save the rest.

Close your eyes and visualize this radically different future.

Maybe it’s one in which you no longer have a car and therefore can save an extra $10,000 or so each year.

Maybe it’s one in which you no longer live in a big expensive city, so your basic cost of living gets cut in half.

Or maybe it’s one in which you move in with family to share costs as you work towards your own savings goals.


You don’t have to be married to any of these courses of action, you just need to consider them so that you get in the habit of challenging your perception of what you can or can’t afford to save.


As you brainstorm these different possible futures, write down the pros and cons of each.

Think through your fears and identify what it is that’s holding you back from making these kinds of drastic lifestyle changes, and conversely, write down what you would stand to gain by adopting them.

For example, if you’re saving 10 percent of your $60,000 a year take home salary right now and you know you need to save 45 percent of your take home salary to reach your five year goals, you might practice mapping out a budget in which you live on just 55 percent of your take home salary – or $33,000 a year.

If that were me, that might mean moving out of Manhattan for a few years.

I might be worried about how that would affect my earning and career potential, I might worry also about the proximity to friends and family. But the temporary change might also be just what I need to afford the down payment on the tiny home I’ve always dreamed of buying.

Use the process of visualization to challenge your perceptions of what’s possible when it comes to increasing your savings.

Again, you don’t have to commit to any of these changes, but rethinking your idea of what’s normal and rejecting the standard rules like save ten percent of your income, can open you up to longer term opportunities you never even considered possible.

Maybe you’ll decide that a drastic lifestyle change would be too much of a sacrifice to meet your goals, but maybe you won’t, and maybe, you’ll find a middle ground that you never previously considered.


Rethinking your idea of what’s 'normal' and rejecting 'standard rules' like 'save ten percent of your income', can open you up to longer term opportunities you never even considered possibleClick To Tweet




  • When I talk about your savings rate, I’m talking about money you’re setting aside – this includes money saved as well as money invested.


  • When thinking about your savings goals, it’s important to consider both your short- and you long-term goals. Yes, you might want to buy a house in 5 years, but you also want to consider how much progress you’ll want to have made on your longer-term goals, (like saving for retirement), in the meantime.


  • If you’re not sure where to save, consider your timeline…

For long-term goals like retirement, utilize your employer sponsored retirement account, like a 401k. If you don’t have that benefit, see how to save for retirement when you’re self-employed.

For shorter term goals and emergency savings, save in a high yield online savings account to maximize your interest. I personally use Capital One 360. 

For medium-term goals, that is, goals you want to achieve some time before retirement, but not necessarily in the next 5 years, consider putting together a goals based investment portfolio.


If you’re ready to take your savings game to the next level join me for my FREE 7-day cash confidence challenge here!



21 responses to “The Myth of the 10% Savings Rate

  1. Stefanie,
    What a great line “…establishing (or re-establishing) the habit of saving is more important than the actual amount you save.”

    I couldn’t agree more.

    Great post!

      1. Great articles….and great site for that matter. Very informative. I love it! Keep up the good work. As to this article. I couldn’t agree with you more that it is extremely important to establish good financial habits, disrupt the status quo and increase that savings rate. The tricky part can be finding the free cash flow for some, but it can be done. If not, increase the income by providing value at work or increasing passive income from investing, etc.

  2. Great post!

    I personally believe that individuals savings rates are so low because our ability to access information instantly. By being able to have this unlimited/fast access to information, we have the ability to find anything we want RIGHT NOW. This means that there is no delayed process that is taking place in our mindset, so we become accustomed to getting things instantly. How does this affect our savings rates?

    Well because we are used to getting information instantly, we are becoming more and more accustomed to short term satisfactions. It isn’t fun/cool to wait for your desires when you can have them now! Same goes with our money…What’s fun about saving money for the future when we can buy what we want now!?

    Thanks for sharing this!

    1. Absolutely. Thanks for sharing Sean. There’s definitely a lot of present bias we need to combat in order to save successfully.

  3. Excellent post. I do think it’s hard for people who can’t save even 10% right away to get started because already it feels too hard, but working up to (and past it) is a good way to start. Massive savings of over 50% is how people get to early retirement!

    1. Absolutely. I think we need to challenge ourselves on both ends. First, at the beginning, to set aside what we can, even if it doesn’t feel like much, because establishing the savings habit is SO valuable. And then second, as our income grows, to grow ours savings rate in tandem with those pay increases.

  4. It’s really difficult to increase your saving rate when you don’t have much income. Our new tenant is young and she’ll have a hard time saving even 10% of her income. The cost of living here is too high. She will need to increase her income to have a better chance. Establishing good spending and saving habit is very important at that stage.
    Great post for new savers.

    1. Agreed. When you’re just starting out or not making much, the habit of saving (no matter how small) is definitely more important than the amount.

    2. I agree with your comments. Also think its important to point out that a forced savings for long term financial health through the 401k is even better. Many times employers match funds (which means you are getting 100% return up front) and you are saving the income tax amount you would otherwise be paying on those funds at the end of the year……… this may help with bumping up to 10% for young savers. However, obviously this is more long term savings as you can’t withdrawal these funds absent certain exception before 59 1/2. However, one of those exceptions is a down payment, etc. young savers should look into this option.

  5. I don’t think many people have the option to save more than 10% of their earnings. If they did they would automatically do that, I don’t want to insult their intelligence. The problem is they just aren’t making enough over their expenses. They simply need to create another income stream.

    1. I agree that saving even 10% is a challenge for many. Working to increase income definitely helps! That said, the proportion of mid – high earners struggling with consumer debt and unprepared for retirement is still significant. So priority number one will definitely be breaking the paycheck to paycheck cycle, but we have to make sure we don’t stop there, or even at a 10% savings rate.

  6. I love your point about saving being looked at as a long term goal and not a short term sacrifice. We’re curently saving 60% of our income towards early retirement (while also paying for daycare for our kids!) and it’s 100% because we have a bigger goal in mind. It doesn’t feel like a hardship to give up fancy date nights when we know we’ll be retired at 33 😉

  7. Love this post! And I appreciate you addressing it isn’t always possible for EVERYONE to save even 10%! I’ve finally gotten into the groove of saving 40%, but breaking into the 50% saber club has been much harder than I thought.
    10% isn’t a lot, but it’s better than nothing!

  8. I also set a goal to save more. I’ve recently switched to a healthier lifestyle, i’ve started training for a race with SportMe half marathon app and also striving for a managing my money better. Hopefully my efforts will pay back soon.

  9. I’ve also switched to a healthier lifestyle and training with SportMe half marathon app and also striving to get my finances back on track. Your blog posts are super helpful and your philosophy works almost eery time.

  10. I think you’re absolutely right. I heard a stat the other day that says that if you want to retire on a lifestyle that you’re accustomed to then you need to save 20% of your income over 35+ years. That’s a hell of a lot more than the 10% we often talk about.

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