You’ve probably heard “save at least 20% of your salary”. It isn’t a bad starting point. But rent, debts, family and goals differ so much from person to person that no single rate fits everyone. A better question is: “How much do I need to save to reach my goal by the date I want?”
A starting point: 50/30/20
The best-known budgeting rule is 50/30/20, described by Elizabeth Warren and Amelia Warren Tyagi in All Your Worth (2005). It splits your after-tax income into three:
- 50% needs: Rent, bills, groceries, transport, insurance, minimum debt payments. Spending you can’t give up.
- 30% wants: Eating out, holidays, subscriptions, hobbies. Spending that makes life enjoyable but can be postponed.
- 20% savings and debt repayment: Emergency fund, goals and debt payments above the minimum.
The rule is handy because it is simple. But for someone paying high rent, needs alone can exceed half of income. Then you’ll need to adjust the shares to your situation; what matters is that the savings share is set aside on purpose.
Why the rate matters: an example
Say you take home ₺60,000 a month. You keep your savings somewhere earning 35% a year after tax and never raise the monthly amount for 5 years:
| Savings rate | Monthly | After 5 years |
|---|---|---|
| 10% | ₺6,000 | ~₺825,000 |
| 20% | ₺12,000 | ~₺1,651,000 |
| 30% | ₺18,000 | ~₺2,476,000 |
Doubling the rate doubles the result. The effect of returns grows over time: the ₺720,000 you put in over five years at a 20% rate reaches ₺1.65 million. Try your own numbers in the compound interest calculator.
These figures are nominal; with high inflation, ₺1.65 million in 5 years is worth much less in today’s money. That’s why raising the monthly amount with each pay rise matters. More: How to save when inflation is high.
Finding your own rate: work backwards from the goal
Instead of a general rate, find yours by working backwards:
- Write down your goal and date. “A car within 2 years”, “a home down payment within 4 years”.
- Estimate the goal’s price on that date. Not today’s price; prices will keep rising.
- Subtract what you’ve already saved. Your current savings will grow until then too.
- Spread the gap over the months. Including returns, find the monthly amount you need.
- Compare it with your income. What percentage of your income is that amount? That’s your rate.
If the rate isn’t realistic, you have three levers: push the date back, make the goal smaller or cut expenses. You choose which suits you.
What comes first?
Where you put your savings share matters too. A common order:
- A small emergency fund (at least one month of expenses). See Emergency fund.
- Paying off expensive debt. Credit card interest is usually higher than what savings earn. See How many months does credit card debt delay your goal?
- Topping the emergency fund up to 3–6 months of expenses.
- Goals: home, car, education, retirement.
An easy way to raise the rate: part of your pay rise
Behavioural economists Richard Thaler and Shlomo Benartzi’s “Save More Tomorrow” study showed that people accept saving part of their future pay rises more easily than cutting today’s spending. Participants’ savings rates rose markedly within a few years.
Applying it yourself is simple: with each pay rise, add, say, half of the increase to your savings. Your spending still grows, and so does your savings rate, a little every year.
How Kartopu calculates it
Kartopu works backwards from your goal:
- Add your income and expenses. See how much is left each month.
- Set up your goal at today’s price. Kartopu projects tomorrow’s price from your price growth assumption.
- Play with monthly saving and pay rises in plans. Ask “What if I add ₺5,000 more a month?” or “What if my raise is 15%?” and see in three scenarios which month you reach your goal.
The monthly view shows how much your savings grew at the end of each month, so you see your real rate, not just the one on paper.
Sources
- Elizabeth Warren and Amelia Warren Tyagi, All Your Worth: The Ultimate Lifetime Money Plan, Free Press, 2005.
- Richard H. Thaler and Shlomo Benartzi, “Save More Tomorrow: Using Behavioral Economics to Increase Employee Saving”, Journal of Political Economy, 112(S1), 2004.
This article is general information, not investment advice.