How Much Money Should You Save and Spend?

What if I told you that most people get it wrong when deciding how much to save and spend? They either save too little, thinking they’ll catch up later, or they over-save, missing out on life experiences. The real trick is balancing these two extremes, but how? Let’s break it down.

The Myth of Saving Too Much or Too Little

You’ve probably heard: “Save 20% of your income.” But here’s the thing—life isn’t one-size-fits-all. What if you could optimize your savings and spending without compromising your lifestyle or future security? Here's a more strategic approach to managing your finances:

• Analyze your lifestyle: Is your current lifestyle something you’ll want to maintain in the future? Do you plan to downsize, or are you looking to upgrade? The first step is understanding where you are and where you want to go.

• Identify your priorities: Not all expenses are created equal. Are you spending on things that bring you long-term happiness? Or are you caught in the trap of keeping up with the Joneses? Prioritize what adds real value to your life.

The 50/30/20 Rule: Why It Works, But You Can Do Better

The 50/30/20 rule suggests you allocate:

• 50% to needs (housing, food, utilities)
• 30% to wants (entertainment, dining, travel)
• 20% to savings

This is a solid rule for beginners, but it’s not tailored. Let’s elevate it:

• Personalize your percentages: Maybe you need to save 30%, or maybe you can thrive saving 15% and investing the rest. The key is flexibility.

• Differentiate short-term and long-term goals: You shouldn’t just save for retirement. You should be building short-term savings for goals like vacations, a new home, or even a side project that could generate more income.

The Power of Automated Savings and Investments

Want a life hack? Automation is your best friend when it comes to money. By automating your savings and investments, you take emotions and impulse out of the equation. Set up:

• Automatic transfers to your savings account every paycheck.
• Investment contributions to a diversified portfolio.

When it’s automatic, you won’t feel the pinch. This approach helps you save consistently, regardless of life’s fluctuations.

Why Spending is Just as Important as Saving

It might sound counterintuitive, but strategic spending is as important as saving. Tim Ferriss often emphasizes the value of investing in experiences over material goods, and here’s why:

• Spending on experiences like travel or learning new skills brings more long-term satisfaction than buying things.

• Invest in yourself: This includes education, health, and personal growth. These expenses have a high return on investment in the form of better opportunities, higher income, and a more fulfilled life.

Here’s a practical example. Let’s say you spend $200 on a course that teaches you a new skill. That skill could increase your earning potential by $5,000 a year. Compare that to spending $200 on a gadget that will be obsolete in a year. Which is the better investment?

The Problem with YOLO Culture

At the opposite end of the spectrum is the “You Only Live Once” (YOLO) mindset, which encourages reckless spending under the guise of living life to the fullest. But here’s the catch—YOLO often leads to financial stress. Instead, balance enjoying the present with preparing for the future.

One simple way to ensure you’re not falling into this trap is to ask yourself, “Does this purchase align with my long-term goals?”

Real-Life Example: How Jane Balanced Saving and Spending

Jane was a 35-year-old marketing manager, making $70,000 a year. She wanted to retire early but also didn’t want to sacrifice her love for travel and gourmet food. So, she created a system:

• 50% of her income went to essentials (housing, food, bills).
• 30% went to experiences: She allocated this to travel and trying new restaurants, two things that brought her joy.
• 20% went to savings and investments, with a focus on index funds that would allow her to retire by 50.

By automating her savings, Jane didn’t have to constantly worry about whether she was saving enough. And by prioritizing experiences over material things, she felt fulfilled in the present while building her future.

The Role of Debt: Friend or Foe?

Debt is a double-edged sword. It can help you achieve your goals, or it can sink you into financial ruin. The key is knowing when to use debt strategically:

• Good debt includes investments like student loans or a mortgage, which typically appreciate in value.
• Bad debt is consumer debt like credit cards, which can spiral out of control due to high interest rates.

If you have debt, prioritize paying off high-interest loans first, while still contributing to your savings.

Creating a Sustainable System

The key to financial success isn’t saving every penny or spending frivolously—it’s about creating a sustainable system that supports both your present and future. This means:

• Balancing immediate gratification with long-term security.
• Regularly reassessing your financial goals to ensure they still align with your life.

The Final Question: How Much Should You Save and Spend?

Ultimately, the answer depends on your lifestyle, goals, and values. There’s no magic percentage that works for everyone, but here’s a quick guide:

• If you’re in your 20s: Focus on building good habits, like saving at least 10-15%, and investing in yourself (skills, education).
• In your 30s: You should aim to have 1x your salary saved, while balancing family and lifestyle expenses.
• In your 40s: Look to have 3x your salary saved, but don’t forget to enjoy life—strategic spending on experiences and personal growth is key.

In every decade, the principles are the same: Save consistently, invest wisely, and spend on what truly matters.

Table: Breakdown by Age and Income

Age Range	Recommended Savings	Key Focus Areas
20s	10-15% of income	Skill-building, emergency fund
30s	1x salary saved	Family, home, lifestyle
40s	3x salary saved	Retirement, investing, experiences