Is Saving $10,000 a Year a Good Effort?

I've had this question come a few times now and want to address it.

“Is saving $10,000 a year a good effort? “

It seems people want to know what the right amount is or if what they are doing is good enough.

$10,000 seems like a nice whole number that is reasonable enough to be investing with.

But what is the right number?

The correct answer is (like so many things): it depends.

The dollar amount you have o isn't the be-all and end-all of investing.

But let's get into that and see if we can work out exactly what a “good amount to invest” might look like for you.

Any Amount Is a Good Start

First off, let's acknowledge that $10,000 is a significant sum.

If you have ability to put this money into an investment, then you are doing better than most.

It's a contribution, and that's what matters.

$10,000 is also an easy number to work with and is one that is commonly used to provided context in investing strategy.

Note that the act of saving or investing—no matter the amount—is where the real value lies.

It could be only $100 a month.

It could be $1000 a month.

It could just be $10,000 and that's it.

Whatever your circumstances allows is good enough to use.

Most of my journey has had been dropping in unusual amounts into investments (like a tax return) or increasing/decreasing the amounts we can regularly contribute due to lifestyle changes (like kids or mortgage increases).

Thanks to the power of compound interest though, whatever you contribute can grow over time into something quite substantial.

And regardless of the amount, starting with what you have still means you're moving in the right direction.

As you may have heard it's the time in the market, not necessarily the amount, that often makes the real difference.

there's no real reasons to hold off until you feel like what you have to invest is worthwhile.

Ultimately, If you're making a conscious effort to put money away you're already doing well.

Proportion Matters More than the Dollar Amount

$10,000 can mean something different depending on who you ask.

Whether its what you have to invest with now or ongoing, put it in perspective with your overall financial wellbeing.

It's helpful to view your investable money (capital) as a percentage of your income or pool of assets (like cash in the bank, property).

So if $10,000 is what you have to invest, what does that mean to you?

Is it 20% of your regular income or 2%?

What is the true value of that money right now, and if it grows what's the potential value to you.

When I'm managing the family finances, everything that is a variable expense (ie. not a fixed cost) is created from its proportion to what we earn.

This kind of planning helps us:

a) we live below our means, and that

b) we can easily scale the dollar amounts we put to investments as our income changes

So if we earn $12,000 a month in income, then investing 10% would be $1200 a month.

Our financial actions are proportional to the income we receive.

It's like setting the volume on your TV—it's not about how high you can go; it's about finding the right level that suits everyone in the room.

If you're earning $50,000 a year, saving or investing $10,000 is a significant move—that's 20% of your income.

But if your annual paycheck is $500,000, the same $10,000 makes up just 2%.

The real story here isn't just the amount you're setting aside; it's how that amount relates to what you're bringing in.

I have gone and built a calculator that helps you understand what the percentage amount of your income might look like in dollar amounts and how that might look invested over time.

Savings Rate Calculator

Where Does Investing Fit In (to your plans)?

Another way to work out the number you should be investing is understanding your goals.

What do you want this money to do for you in the future?

This clarity can be quite helpful.

If your goals are long-term, such as retiring early or building wealth over decades, investing is likely the better route for you.

On the other hand, if you notice you're saving more money than you need right now, consider investing it.

It might be as simple as working out what it would cost to retire 5 years earlier (55 instead of 60) and working back how much 5 years worth of expenses would cost.

If that was say $200,000 and you were 20 years away from turning 55 then investing $10,000 a year at a very conservative 7% would get you to over $400k.

An idea: Matching Your Super Contributions

Another way to find out what the right amount to invest is work with what you have going towards your retirement savings.

We know that as of 2023 as an employee, 11% of your income is already designated for your super fund, which you'll tap into after turning 60.

That's pretty much set in stone.

But what if you took this 11% idea and did something similar with your post-tax, pre preservation age money?

This isn't a directive; it's more like a lightbulb moment worth considering.

It might help if your goal is less a number and more a place (like early retirement).

Picture this: You've already got 11% of your income working for you for life after 60.

So, why not entertain the idea of setting aside another 11% for the years leading up to that age?

This is a simple concept that pretty much anyone can wrap their head around.

You’re essentially setting up two investing lanes—one for life pre-60 and another for life post-60, both fueled by the same percentage of your income.

You can do the math and work out what that means for you long term, but my view on retirement planning is build up both while you can so that retirement comes sooner and is more comfortable.

Also, when you establish a savings or investment practice that mirrors your already-established super contribution, something intriguing happens.

It creates a sense of balance and symmetry in your financial planning.

You're not just throwing money into a pot and hoping for the best; you’re taking a calculated, balanced approach to your financial future.

There's also a psychological perk to this idea.

Knowing that you're proactively planning for both stages of your life can offer a sense of security and accomplishment.

It reduces the pressure and stress associated with future planning, making your financial journey feel a bit more within your control.

It's Not Just About the Number

So, is saving $10,000 a year still a good effort?

Well, the short answer is yes, but—as we've unpacked here—it's really not that simple.

The act of saving or investing is certainly worthwhile, no matter the amount.

However, what makes it truly impactful is how that figure sits in relation to your overall income and life plans.

Perhaps the most enlightening takeaway here is that there's more than one way to think about your money.

Whether it's viewing your savings and investments as a percentage of your income or entertaining the idea of setting aside money for life both pre- and post-60, the key lies in tailored, thoughtful financial planning.

And remember, these aren't hard rules but rather ideas to chew on, angles to consider.

Personal finance is just that—personal.

Your journey should reflect your goals, your comfort levels, and your aspirations.

If nothing else, let this discussion be a launching pad for deeper thought on how you're steering your financial ship.