Figuring out what percentage of your income should be set aside as savings is an issue many people struggle with. The most common advice given is to apply the 20/50/30 rule of thumb where 20% of your monthly income should be set aside for savings, 50% should be used for fixed expenses and 30% for discretionary items (this includes things you want and not things you need). It sounds logical but I got two problems with this rule:

First, why should you set aside 20% of your income for savings and up to 30% on things you don’t actually need? If one has to apply this rule, then I believe that the use of those two percentages have to be interchanged.

Secondly, a rule should not be the basis for everyone. Our needs, objectives, timeline are all different. The fact that this rule might work out for someone, does not necessarily mean that it will work out for the next person too.

So what are we saying?

When someone comes up with the question of “how much should I save” the answer should be “why do you want to save?”, “what objectives do you want to meet?”, “what timeline have you given yourself to meet those objectives?”

These questions serve as a tool to be introspective. They make you ask yourself the right questions and remember that the quality of your answer depends on the quality of your questions. With these questions, you will have to set goals, figure out when you want to achieve those goals (short, medium and long term), analyse your expenses and then decide on the amount you will want to save. It sounds easy right? But if it was that easy then everyone should have been doing it.

It takes a lot of discipline and the magic happens when you are CONSISTENT. After doing this analysis and coming up with an amount, you have to be consistent in the process because the moment you fail to do what you set yourself to do and make excuses, you are likely to end up worse than when you started.

In addition to what I said above, I will advise everyone to have an emergency fund. This will help you watch out for the future in case things turn out to be bad like losing a job, falling sick. Life is so unpredictable and watching out for this is important.

Your monthly expenses for a period of four months to one year is the amount that should be found in your emergency fund. Let’s say you need 1000 GHs for survival per month that means you should have between 4000 to 12000 GHs in your emergency fund. Less is not advisable but more is always welcome.

Did you write down your financial goals? What strategy did you use to decide on the amount of money you will set aside? Do you have an emergency fund? Ask yourself the right questions and your brain will be at work to figure it out.