Why You Should Ignore the ‘Save 10% of Your Income’ Rule

We’ve all heard it: save 10% of your income, and you’ll be on track for a secure financial future. While this rule has become a staple of personal finance advice, the reality is that it doesn’t always fit everyone’s situation. Financial planning isn’t one-size-fits-all, and sticking rigidly to the 10% rule can sometimes do more harm than good. Here’s why you should consider rethinking this outdated advice and find a savings strategy that truly works for you.

Different Incomes, Different Needs

The “save 10%” rule doesn’t take into account that everyone’s financial situation is different. If you’re earning a lower income, saving 10% might be unrealistic when you’re struggling to cover basic expenses. On the flip side, if you’re a high earner, 10% might not be enough to meet your long-term goals.

Instead of focusing on an arbitrary percentage, determine how much you actually need to save based on your unique financial goals, lifestyle, and income. For some, that might mean saving more than 10%, while for others, it might mean saving less for a period of time.

Life Is Full of Changes

Life is unpredictable, and your ability to save will likely fluctuate over time. The 10% rule doesn’t consider major life events like losing a job, having a child, or dealing with medical expenses. During these times, saving even a small percentage of your income might not be possible, and that’s okay.

It’s more important to be flexible with your savings rate and adjust it as your circumstances change. There will be times when saving 10% isn’t feasible, and other times when you might be able to save significantly more.

Focus on Your Goals, Not Arbitrary Rules

The problem with the 10% rule is that it’s an arbitrary figure that doesn’t reflect your personal goals. Are you saving for a home, an early retirement, or a big trip around the world? Your savings rate should be determined by your specific goals, not by a generic number.

Take the time to define your financial goals, and then work backwards to determine how much you need to save to achieve them. This approach will be much more effective than simply following a blanket rule.

High Debt Can Make Saving Difficult

If you have high-interest debt, trying to save 10% of your income while paying off that debt might not be the best strategy. In many cases, it makes more sense to focus on paying down high-interest debt first before committing to a specific savings rate.

By reducing your debt, you’re effectively “earning” a return equal to the interest rate you’re paying. Once your debt is under control, you can then shift your focus to saving.

The Power of Incremental Increases

If saving 10% feels overwhelming, start smaller. Even saving 1% or 2% of your income is better than nothing, and you can gradually increase your savings rate over time. The key is to build the habit of saving, even if it starts small.

As your income grows or your expenses decrease, aim to increase your savings rate incrementally. Over time, these small increases can add up and help you reach your financial goals without the pressure of hitting a specific percentage right away.

Prioritize an Emergency Fund

Before worrying about saving 10% for retirement or other long-term goals, it’s crucial to prioritize building an emergency fund. Without a financial safety net, you could find yourself relying on credit cards or loans in the event of an unexpected expense, which can set you back even further.

Focus on building an emergency fund that covers at least three to six months of expenses before worrying about hitting a specific savings percentage. This will give you a solid foundation to handle whatever life throws your way.

Lifestyle and Stage of Life Matter

Your savings rate should also reflect your current lifestyle and stage of life. If you’re in your 20s and just starting out, you might have student loans or other expenses that make saving 10% difficult. If you’re in your 40s or 50s, your priorities might be different, and you may need to save more aggressively.

The key is to adjust your savings strategy based on your current circumstances, rather than sticking rigidly to a rule that might not be relevant to your situation.

Investing Can Boost Your Savings

Another issue with the “save 10%” rule is that it doesn’t address what you should do with those savings. Simply putting money in a savings account may not be enough to meet your long-term goals, especially with rising inflation. Investing can help grow your savings faster and put you on track for financial security.

Consider how you can invest your savings to make your money work harder for you. Whether it’s through retirement accounts, stocks, or other investments, putting your money to work can make a big difference over time.

There’s No Magic Number

The truth is, there’s no magic savings rate that works for everyone. Financial planning is highly personal, and what works for one person might not work for another. The 10% rule is a starting point, but it’s not a hard and fast rule that you must follow.

The best approach is to be realistic about your financial situation, set clear goals, and adjust your savings rate as needed. Sometimes, saving less is okay, and other times, you might need to push yourself to save more. The important thing is to make progress towards your goals, even if it doesn’t fit neatly into a specific percentage.

Ignore the 'Save 10% of Your Income' Rule and Focus on Consistency Over Perfection

At the end of the day, the key to successful saving is consistency, not perfection. The 10% rule can be helpful as a guideline, but it’s more important to save what you can, when you can, and to keep building on that habit over time. Life is unpredictable, and your savings journey will have ups and downs—but staying consistent, even with small amounts, will help you achieve your financial goals.

Ignore the rigid “save 10% of your income” rule if it doesn’t work for you. Instead, find a savings strategy that fits your life, your goals, and your unique financial situation. The path to financial security is different for everyone, and it’s about finding what works best for you.

Featured Image Credit: Unsplash / Photo by Fabian Blank.