David Bach is a financial advisor and author who created the popular ‘Finish Rich’ book series. He uses his expertise to help people save money and prepare for better financial futures.
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As part of that work, Bach recently shared a YouTube video with his views on the amount of money you should save by the time you reach major age milestones. Here’s what he said and what you should do if you’ve fallen behind.
Bach: How Much You Should Have in Savings at Every Age
Bach says you should base your savings goals on your salary. As you get older, you want to have more multiples of your salary saved. With that in mind, here’s how much Bach believes you should have saved by different ages:
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30: 1x salary
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35: 2x salary
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40: 3x salary
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45: 4x salary
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50: 6x salary
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55: 7x salary
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60: 8x salary
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67: 10x salary
So, if you earn $75,000 annually, you should try to save $75,000 by the time you’re 30 and $750,000 by age 67. Bach says he based these figures on a formula created by retirement plan provider Fidelity.
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How To Use Bach’s Savings Formula
Bach warns that his age-based savings formula is imperfect because it’s not personalized. Your goals and age can considerably influence your optimal savings strategy, so keep this in mind when calculating your needs.
For example, you might be 50 and starting over financially. If so, aiming to save six times your salary as soon as possible can be a daunting goal. It may be better to focus on saving your annual salary first.
Or maybe you have major retirement goals that will cost a lot of money — like seeing the world. If this is the case, you may need to outpace Bach’s guidelines to reach your goals.
Ultimately, it’s best to treat Bach’s saving recommendations as generic guidelines. They’re great for telling you whether you’re ahead or behind in savings for your age, but your personal goals and current financial situation should also play a role in your savings strategy.
Bach on How Much to Save
Bach’s savings milestones may tell you how much you should save, but they don’t say how to do it. For that, you can look at some of Bach’s other savings rules.
He starts by saying not to panic if your savings aren’t where they should be for your age. Instead, he says to focus on getting up and running again so you’re making some progress toward your goals.
Next, Bach recommends setting aside 10% to 15% of your income for retirement savings. He says to start that process by revisiting your 401(k) plan and increasing your contributions by at least 1% or 2%. Bach also says not to pass up any employee matches, as it’s essentially free money.
If you don’t have a 401(k), don’t worry. According to Bach, opening an IRA is another effective way to prepare for retirement. Continue contributing 10% to 15% of your income to savings over a period of years, and your net worth can increase substantially — provided you make smart investments.
Investing Your Savings
Holding all of your savings in cash isn’t usually the best strategy. Doing so will decrease your purchasing power over time as ongoing inflation reduces the value of every dollar. This means you don’t just want to hold Bach’s recommended savings balance in a bank account. Instead, you can hold the capital in investments that will outpace inflation over time.
Some low-risk options include government bonds and CDs. These may be your best options if you’re older and hoping to retire relatively soon.
If you’re younger, consider investing your savings in the stock market instead. The S&P 500 has returned an average of 9.25% over the last 150 years. You can still lose money in a given year, but if you hold your positions long-term, your savings should increase over time.
Final Take
Reaching financial freedom can feel like an impossible goal. But if you break it down into annual milestones, you’ll have a much better sense of the progress you make over time.
This can help you remain consistent and achieve more of your goals. Just remember — no two financial situations are entirely alike, so don’t feel bad if you’re behind for your age. Get started now so you can make progress as soon as possible.
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This article originally appeared on GOBankingRates.com: David Bach: How Much You Should Have in Savings at Every Age
