Many young earners ask themselves, “What percentage of my salary should I invest monthly? Would 10% suffice, or should it be 20%?” They typically seek a quick and easy way to determine if they’re on the right path and to alleviate any guilt associated with their spending habits. Regrettably, this is one of several flawed inquiries people make regarding personal finance.
You must ask, “How much should I invest for my financial independence?”. The answer won’t be pleasant! Here is a thumb rule.
Invest as much as you spend each month for normal retirement. For early retirement in India (FIRE), invest nearly twice as much as you spend each month.
The screenshot below illustrates the origin of this rule. We recommend using a proper retirement planning tool and repeating the calculation once a year with fresh inputs. Here is a detailed calculation: I am 30 and wish to retire by 50; how should I plan my investments?
In summary, do not ask, “What percentage of my salary should I invest each month?”. Instead, ask, “What percentage of my expenses should I invest each month for financial independence?”. The answer is bitter medicine – as much as possible, ideally as much as you spend! For another illustration, see: How should I invest to get Rs. one lakh a month pension?