How to know the right amount to save

savings planI always like simplicity. That’s why I use a rather simple formula to calculate how much to save for retirement. According to the formula I use, I put away 20% of my after-tax income into a brokerage account or retirement accounts such as a 401k or Roth IRA.

So where did I come up with the number, 20%? Basically, it’s based on a formula that was developed by former Harvard professor Elizabeth Warren. It’s called the 50-30-20 rule, and it tells you to spend 50% of your take home pay on needs, 30% on wants, and 20% on savings.

20% may seem like a lot at first, and it may require some adjustments to your lifestyle. But once you get used to it, you probably won’t notice much of a difference in your quality of life. As for myself, I really like the peace of mind that 20% buys. I sleep better at night knowing that I have a good deal of money set aside for a rainy day.