We should be saving 10% of our salary

The other day, I came home so exhausted and who do I meet? A bubbling wife who had found a formula on how much any family should be saving each month. “I read it in the Money Magazine; they say families should be saving 10% of their salaries for a comfortable retirement,” she said.

I was so tired but I still showed interest in the topic; I had no choice as you never know what you would lose later if you don’t show interest.

“But sweetie, is this not a generalisation?” I started off with a smile of course. “Don’t you think this rule completely ignores the realities of the working class and of the lower middle class who may not manage to save that much. And this further ignores the upper middle class, who really should be saving more than 10 percent of their salary.”

I realised I was giving more of a lecture than appreciating her argument. “Sometimes when I tell you things, it is not because I want you to comment, I just need your listening ear,” she retorted. I knew I gauged it wrongly.

Noting the change in the mood, I quickly pointed to the Bachelorette Programme which was showing on TV. “Perhaps let us watch that and pick up the conversation later”. I suggested. We never quite picked it up again.

But my wife had a solid point though I felt it was a bit generalising. For example, a single mother who brings home K20 000 a month is supposed to be saving K2 000 of that? The simple fact of the matter is that she may not be able and it’s dangerous for the living situation of her and her child if she tries.

There is no money to shave off in that situation; the mother’s focus should be in ensuring healthy food and good education for that child so that he isn’t stuck in the same situation. If that mother can sock away a few kwachas, that’s great, but saying that anything less than K2 000 isn’t enough is ignoring the economic reality.

On the other hand, let’s look at a married couple bringing in K240 000 per month. Should they only be saving K24 000 a month? They should be saving a lot more than that otherwise they’re spending at a frightening rate and will be working until very late in their lives. Their savings and investments should be exceeding K40 000 a month, easily.

How can both realities be reconciled into a single rule? It’s quite easy, actually; there should be a minimum threshold for living, and then above that you should be socking away some percentage without necessarily jeopardising you daily livelihood.

Let’s look at an intermediate situation. If a couple brings in K100 000 a month, the Money Magazine rule states they should be saving about K10 000 a month. At that rate, to continue their K100 000-level existence at retirement, they’ll probably have to work until they are in their seventies. But perhaps such a couple should be saving 20 percent a year. This is a much healthier target that enables them to retire much earlier while they are still healthy to run their own business.

Then make sure you don’t just put the money saved into your current account. Invest it. Now the world of investment has a number of instruments which not all of us will understands. Others will fool to you by saying ‘If you don’t understand how an investment works, don’t buy it.’

If you are interested in a particular investment, pick up a book at your local library (or your local bookstore) and read about it. This is an opportunity to learn something that could be directly useful to your pocketbook, not an excuse to run for the hills like a coward.

I agree that you should never buy an investment that you don’t understand, but merely saying, “I don’t understand it, so I’m not going to buy it” is a losing philosophy. You’re much better off saying, “I don’t understand it, so I’m going to learn about it or even consult an expert.”