8 GENIUS Tips for Saving From Fidelity Investments

piggy bank on top of 100 one hundred dollar bills

Set a budget and stick to it: Fidelity Investments offers a simple spending and saving guideline that can help you save enough to retire. Our research found that by sticking to this guideline, you’ll have a good chance of maintaining financial stability now and your lifestyle in retirement:

o    Essential expenses: 50% – Some expenses simply aren’t optional—you need to eat, and you need a place to live. Aim to have no more than 50% of your take-home pay go toward your “must-have” expenses, like housing (rent, mortgage), food, healthcare, transportation and debt payments

o    Retirement savings: 15 % – It’s important to save for your future, no matter how old you are. In order to give yourself a good chance of meeting your income needs in retirement, we suggest saving 15% of your pretax household income for retirement. That includes your contributions and any matching or profit sharing contributions from your employer. If contributing that amount right now isn’t possible, see if your employer has a program that automatically increases your contribution annually until you meet your goal. Another strategy is to contribute at least enough to meet your employer match, and then if you get a pay raise or bonus, take all or part of it and allocate it to savings.

o    Short-term savings: 5% – Everyone needs an emergency fund. An emergency, like an illness or job loss, is bad enough, but not being prepared financially can only make things worse. A good rule of thumb is to have three to six months of essential expenses readily available. Think of your emergency fund contributions as a regular bill every month, until you have built up enough.

o    The rest: 30% – The good news is that you don’t have to micromanage every penny, and it’s up to you how to spend and invest the remainder of your income.  The more of this 30% that you can invest, the better – that means that the money you work so hard for can actually work hard for you!

  • Think of savings as a monthly bill and make it automatic: You probably use an online bill pay service to pay your rent, mortgage, electric, and cell phone bills, so think about savings as a regular bill too and “pay yourself.” Have money automatically moved from your paycheck or checking or bank account into a separate savings account once a month, and resist the temptation to use this money for other purposes.  And as much as we all love “set it and forget it” make sure you don’t completely forget it.  Do check in on your savings on a regular basis to make sure your savings are on the right track and that you are actually investing part of your savings so that your money is working for you.
  • Save at work – make sure to take advantage of potential “free money”: If your company offers a 401(k) retirement savings plan, that makes saving pretty easy, especially if your employer contributes “free money” via a matching contribution – and many do. Another benefit: When you contribute to a traditional 401(k), you can potentially reduce your current taxable income.
  • Consider a rewards card: Do you use a debit or credit card for everyday purchases, like groceries, and for bigger ticket items, like flights? If so, you could use these transactions as a way to save money when you use a rewards card that pays you cash back. For example, if you spend $1,000 a month on a 2% cash-back credit card, you could invest the $240 annual cash back into a brokerage account.
  • It’s all about taking even one small step to save up towards whatever it is you dream of for your future:  If your financial situation precludes you from saving that goal of 15% right now, save what you can.  Getting started is key.  Put aside just 1% (or 1% more, if you’ve already started) into a tax-advantaged retirement account like a 401(k) will build up over time to make a big difference. Few people get there overnight. Think of retirement as a journey – the key is to save as much as you can now and try to increase your savings over time.
Share This Post: