Key Takeaways:
- Setting aside 10% of your gross monthly income is an excellent way to build your savings.
- Accounts with compounding interest help your savings grow over time.
- The best time to start saving was yesterday, but starting today is the second best time.
The 10% rule is a savings tip that suggests you set aside 10% of your gross monthly income for retirement or emergencies. If you still need to start a savings account, this is a great way to build up your savings.
You should create a monthly budget before starting your savings journey. Starting a monthly budget will help determine if you can afford to put away 10% of your gross monthly income. Adjusting to a budget might take some time, but it’ll be worth it.
Don’t worry; you don’t have to come up with a budget on your own. You can use our practical budgeting template to help you get started.
If you have a lower monthly income, don’t let that discourage you from saving. If you are stretching your budget too thin to put away 10%, try starting smaller and building up to 10%. Start with 4% and work your way to 10%. Save where you can and be mindful of your budget.
Remember that your gross monthly income is the money you make before taxes, insurance, and other deductions.
How the 10% Rule Helps you
What can you use your savings for? You can use it for emergencies, like unexpected car repairs or medical bills. You can save for a down payment on a house. And, of course, it’s always good to save for retirement.
The 10% rule helps you build a better habit of saving and be more prepared for unexpected expenses or long-term financial goals.
How the 10% Rule Works
Starting to save early is a great way to build your savings over time. For example, the median household income in the United States was $70,784 in 2021. If you saved 10% of that each month, you would have $7,000 saved in a year.
If you started using the 10% rule at age 25 and invested 10% of your monthly income in a retirement account, earning 5%. By the time you turned 65, you would have saved $280,000 and earned $1,152,663.63 in interest, resulting in a total of $1,432,663.63 in your retirement account.
An excellent way to set money aside each month while being mindful of your budget is by setting up regular automatic transfers into your savings account. Setting up automatic transfers makes savings simpler. Not having to transfer your 10% each month manually will keep you from forgetting or skipping moving money to your savings.
Where to Keep Your Savings
Now, where should you put that 10%? You can save it in a regular savings account, a high-yield savings account, or even a retirement account. But before you open any of these accounts, check the fees and minimum balances. Remember that having an account with compound interest can help you save even more over time.
Compound interest lets your money work hard for you by growing interest over time. Good examples of compounding interest accounts are certificates of deposits (CDs), savings accounts, interest bearing checking accounts, 401(k) accounts, and investment accounts. With compounding interest, the sooner you start, the better.
It’s important to remember to keep your retirement savings and emergency fund separate. There are better ideas than using your retirement savings for unexpected expenses. Instead, you can put your retirement savings into a long-term investment account like a 401(k). Just be sure to contribute enough to get your employer to match if they offer one. An emergency fund can be kept in a high-yield savings account, which earns interest and is readily available.
Final Thoughts
Yesterday was the best time to start savings, but today is the second-best time. To find more personal finance tips check out our website Personal Finance Archives – Texas Regional Bank. Please schedule an appointment today with one of our bankers to review our savings account options.
FAQs
Key Takeaways: Setting aside 10% of your gross monthly income is an excellent way to build your savings. Accounts with compounding interest help your savings grow over time.
What is the 10% rule bank? ›
The 10% rule is a savings tip that suggests you set aside 10% of your gross monthly income for retirement or emergencies. If you still need to start a savings account, this is a great way to build up your savings. You should create a monthly budget before starting your savings journey.
What is the 10% saving rule? ›
The 10% rule of investing states that you must save 10% of your income in order to maintain a comfortable lifestyle during retirement. This strategy, of course, isn't meant for everyone as it doesn't account for age, needs, lifestyle, and location.
How much money do you need to retire with $100,000 a year income? ›
So, if you're aiming for $100,000 a year in retirement and also receiving Social Security checks, you'd need to have this amount in your portfolio: age 62: $2.1 million. age 67: $1.9 million. age 70: $1.8 million.
Is saving 10% of your income enough? ›
Retirement
You should consider saving 10 - 15% of your income for retirement. Sound daunting? Don't worry: your employer match, if you have one, counts. If you save 5% of your income and your boss matches another 5%, you've accomplished a 10% savings rate.
What happens if you have more than 10 000 in the bank? ›
Depositing a big amount of cash that is $10,000 or more means your bank or credit union will report it to the federal government. The $10,000 threshold was created as part of the Bank Secrecy Act, passed by Congress in 1970, and adjusted with the Patriot Act in 2002.
What is the $3000 bank rule? ›
The regulation requires that multiple purchases during one business day be aggregated and treated as one purchase. Purchases of different types of instruments at the same time are treated as one purchase and the amounts should be aggregated to determine if the total is $3,000 or more.
Can I retire at 65 with no savings? ›
You can still live a fulfilling life as a retiree with little to no savings. It just may look different than you originally planned. With a little pre-planning, relying on Social Security income and making lifestyle modifications—you may be able to meet your retirement needs.
Should I keep $10,000 in savings? ›
First things first: There's nothing wrong with keeping $10,000 in a savings account. If you're working with a reputable bank, your money will have Federal Deposit Insurance Corporation (FDIC) insurance up to $250,000 per person per account ($500,000 for joint accounts).
What is the 70 20 10 rule for savings? ›
The 70-20-10 budget formula divides your after-tax income into three buckets: 70% for living expenses, 20% for savings and debt, and 10% for additional savings and donations. By allocating your available income into these three distinct categories, you can better manage your money on a daily basis.
The short answer to this question is, “Yes, provided you are prepared to accept a modest standard of living.” To get an an idea of what a 60-year-old individual with a $300,000 nest egg faces, our list of factors to check includes estimates of their income, before and after starting to receive Social Security, as well ...
What is the average 401k balance for a 65 year old? ›
How much Social Security will I get if I make $100,000 a year? ›
If your highest 35 years of indexed earnings averaged out to $100,000, your AIME would be roughly $8,333. If you add all three of these numbers together, you would arrive at a PIA of $2,893.11, which equates to about $34,717.32 of Social Security benefits per year at full retirement age.
What is a good monthly retirement income? ›
Average Monthly Retirement Income
According to data from the BLS, average 2022 incomes after taxes were as follows for older households: 65-74 years: $63,187 per year or $5,266 per month. 75 and older: $47,928 per year or $3,994 per month.
What is a good monthly retirement income for a couple? ›
The average retirement savings for a person about to retire are approximately, $225,000, equal to $450,000 combined for a couple that has saved equally. Following the conservative rule of thumb and withdrawing 4% a year will provide this couple with another $1,500 monthly or $18,000 a year.
How much savings does the average person have when they retire? ›
The Federal Reserve's most recent data reveals that the average American has $65,000 in retirement savings. By their retirement age, the average is estimated to be $255,200.
How much money can you put in the bank without being questioned? ›
Banks must report cash deposits of more than $10,000 to the federal government. The deposit-reporting requirement is designed to combat money laundering and terrorism. Companies and other businesses generally must file an IRS Form 8300 for bank deposits exceeding $10,000.
What is the 1020 rule in finance? ›
The idea is to keep your total debt at or under 20% of your annual income, while maintaining monthly payments at no more than 10% of your monthly net income. Very important — these figures exclude real estate debt.
How much money can you keep in a bank without questions? ›
That is until you get a notice in the mail that you've been reported to the Internal Revenue Service (IRS) or Financial Crimes Enforcement Network (FinCEN). Don't panic, though. It doesn't mean you've done anything wrong. Financial institutions are required to report large deposits of over $10,000.
What is the rule 9 in banking? ›
Rule 9 – ECCHO Rules Section XIX(O)
Forged and counterfeit items are often identified by bank customers after the return deadlines have passed. Rule 9 allows the Paying bank to file a claim to recover from a fraudulent item after the UCC midnight return deadline.