You’ve worked hard to reach the point where you can finally start contributing to your nest egg. But how much is the right amount? There are several rules of thumb, such as the 50/30/20 or 70/20/10 formula, to go by. But determining what formula is right for you depends on your financial situation.

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Establish Your Savings Goals and Your “Why”

Some financial experts recommend aiming for 10 percent while others agree 20 percent is the sweet spot. In fact, TIAA-CREF recommends 20 percent as a rule of thumb, but anything less than that is “not advised”.

But depending on your “why”, this number could be much higher or lower for you.

So, you must ask yourself the following question: what will life look like when you retire?

Maybe you don’t earn a fortune and plan to keep your expenses as low as possible (or even lower during retirement). If so, a goal of 20 percent may be much more than you’ll actually need once you’ve retired. But if you’re in this category and plan to spread your wings and explore the finer things in life during retirement, a goal of 20 percent could be a bit too modest.

On the other hand, if you’re a high-income earner with a load of debt and everyday expenses, you will need to beef up your target to ensure you can survive in during the golden years.

Run The Numbers

Use a retirement calculator to determine what percentage of your income you should be saving between now and retirement age to meet your goal. This tool can be found on websites, like AARP and Edward Jones, and paint a clear picture while factoring in the impact of inflation.

Don’t Forget About Your Rainy Day Fund

When figuring how much income you can afford to stash away for your nest egg, keep your rainy day fund in mind. It’s easy to get wrapped up in planning for the distant future. But you want to prepare in the short term in case a financial emergency arises. Plus, it’ll be counterproductive to borrow from your nest egg for an emergency as you may incur fees and penalties.

And Other Large Purchases…

Do you plan to spend on big-ticket items between now and retirement? Maybe you want to save up for a down payment on a new home, buy commercial real estate for a new business venture or load your children’s college fund?

You should also factor in the costs of these purchases when determining how to save every month. Otherwise, you could set an inflated goal and have to backtrack and readjust later on down the line.

How to Meet Your Savings Goals

Start Paying Down Debts

Do you know how much your debt is costing you? If the interest rates are fairly high, chances are you’ll pay hundreds if not thousands more in interest over the life of the loan or until the credit cards are paid off. Now imagine how much extra you could save each month if you didn’t have debt?

To illustrate, assume you have a credit card with an APR of 19.99 percent and an outstanding balance of $7,500. If you only make the minimum payment of $200 each month, it will take you 60 months (or 5 years) to pay off the card. Even worse, you’ll spend roughly $4,500 in interest.

Now, imagine if you could contribute that monthly payment towards your nest egg for x years. You’d be able to reach your savings goal much faster. And if you doubled that monthly payment to x, the balance would be paid off in 23 months (or almost two years) and you’d save around $2,800 in interest payments.

That’s why you should accelerate your debt payoff efforts sooner than later. And it’s not necessary to pump the brakes on working towards your savings goals while doing so. In fact, it’s best if you do both simultaneously.

Reassess Your Spending Plan

Are there expenses in your budget that can be reduced or eliminated? And is your spending plan realistic? There’s a possibility that a few small tweaks could make it easier to reach your savings goals.

Supplement Income

You can also find ways to bring in some extra dough each month. A few ideas:

  • Work overtime if the opportunity presents itself
  • Find a part-time job that doesn’t interfere with your full-time work schedule
  • Ask for a raise if your performance merits it
  • Put your creative talents to work by freelancing
  • Get a side hustle or complete odd jobs
  • Use financial windfalls wisely

Remember, short term pain for long-term gain. Even if you only commit to supplementing your income for a brief period early on, you’ll allow compounding interest to work in your favor.

Start Small

Perhaps you’ve done everything you can and you still can’t save that desired percentage of your income each month? Start small as some effort is better than none at all.

Take Advantage of Retirement Accounts

Not all retirement accounts are created equal, but here are some tips to get the most bang for your buck:

  • 401(k) Retirement Plan – It’s up to you to decide what to contribute, but the amount should at least equal your employer match. Otherwise, you’ll be leaving free money on the table each year. Furthermore, you won’t have the luxury of reducing your taxable income.
  • Roth IRA- Contributions are post-tax, but that means you’ll have more money in your pocket once you retire since Uncle Sam has already gotten his cut. To determine if you qualify or learn more about Roth IRAs, take a look at this detailed guide. More information can also be found in IRS Publication 590-A.

If you don’t have a retirement account, consider opening a money-market account to earn a return on your money. You should also consult with a financial adviser to inquire about other investment vehicles that optimal for your situation.

What If You Can’t Meet Your Goal?

Start somewhere, but always keep the end goal in mind. As time progresses, you should be able to pay down your debts and use the money saved on interest to save even more. Also, remember that deprivation is not the key and could potentially backfire.

So, start saving now and take strides towards increasing that monthly percentage. By doing so, you’ll save yourself the frustration of playing catch up as you come closer to retirement age.