When it comes to obtaining financial independence and having the possibility of retiring early, it’s necessary to build up a hefty level of savings. This is harder than it sounds because it requires frugality and discipline. For many Americans, it is a challenge to make the necessary sacrifices. For others, it’s merely unattainable at their level of income.
Before COVID, the median household income in America was approximately $68,000. Experts advise people to save half their income. This is not a formula that works across all tax brackets. Keeping half at the median level would require putting away over $30,000 annually for the average household, which is much more complicated than it would be for a family earning six figures a year. Additionally, geography plays a significant role in the ability of people to save considerable sums of money. Keeping half of a $100,000 salary would likely be more manageable in Sioux Falls, South Dakota, than in New York City. In contrast, an enormous income in a metro area could still provide the ability to save a considerable amount.
For other people, saving a massive amount of money comes from a decrease in expenditures across the board. Examples might include cutting the cost of housing and transportation. A larger commitment to savings might consist of downsizing or moving to save on taxes, insurance, and utilities. Additionally, a residence that is closer to work can help cut down on the cost of gas and maintenance on a vehicle, as well as other commuting expenses. For those who need an automobile, buying a gently used car will usually lead to substantial savings over buying a new one.
A household that saves 50% of its income can survive for a year on the savings from a single year’s salary. This would not be advisable for most people, but the ability to do so can cut the amount of financial stress in a family’s life. The way to make your money work for you, in the long run, is by investing in the type of account that offers compound interest. Experts also advise people to set aside an emergency fund that is equal to three to six months of income, just to be prepared.
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