Whether for a rainy day, property, or a pension, we are constantly told about the need to save. But we are rarely told how much we should have saved at certain ages. To shed some light on the matter, economist Kimmie Greene provides a method which gives us an idea of the ideal amount we should have set aside at each period of our lives.
The goal of Greene’s method of saving is to be able to live properly until retirement, or at least to benefit from a comfortable buffer to compensate for any unforeseen events throughout life.
For this, the economist has developed a simple formula that hinges on two main factors: the age of an individual and their annual salary. By combining these two, the formula calculates the amount of money you should have set aside as you reach each new age group. The goal is to give people a clear goal of the amount that should be reached and to regulate their savings accordingly.
How much should you have saved?
• By 20, you should have saved 25% of your current annual net salary.
• By 30, you should have saved 100% of your current annual net salary.
• By 35, you should have saved twice your current annual net salary.
• By 40, you should have saved three times your current annual net salary.
• By 45, you should have saved four times your current annual net salary.
• By 50, you should have saved five times your current annual net salary.
• By 55, you should have saved six times your current annual net salary.
• By 60, you should have saved seven times your current annual net salary.
• By 65, by the time you reach the approximate retirement age, you should have saved eight times your current take-home salary.
Greene points out that this is only a guideline. Unfortunately, not everyone is equal when it comes to the cost of living and cannot afford to save as much as their neighbour. The important thing is therefore to do the best you can to get closer to this value, without taking it too hard if you do not quite achieve your goal.
On the other hand, Greene says that the goal is to avoid falling below a savings of 20% of the equivalent of your annual net salary. In this way, you will have savings equal to your full salary every five years.
If you think you're far from it, there's nothing stopping you from getting started right now. Of course, if you start saving at 25 (the age around which many young people graduate from school), it will be harder to have saved 100% of your annual salary at 30 than if you had started at 20 or earlier.
Cost of living on the rise
According to Greene, the amount you should have saved by the age of 30 "depends on your situation in life. No matter what age, the goal is to have six months of living expenses saved. Admittedly, it's harder in your twenties, but it's a good time to start," the economist said.
"Six months of spending" obviously remains a relative concept. In 2020, it is estimated that Belgian households spent an average of €35,209 per year, compared to €35,764 in 2018. The cost of living could rise further and households will continue to be financially prudent for some months to come. Inflation reached 11.27% in September, the highest since 1975.
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"For an average household, we could have an additional cost of living of €500 to €600," said Bruno Colmant, professor of economics at UCLouvain and ICHEC. "This includes the increase in energy prices, the increase in food prices as well as the indexation of rents that could reach 10% of the wages of the less advantaged."
