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One of the biggest challenges that individuals face as they create a monthly budget is balancing saving for retirement with their other financial goals. Finance experts recommend saving as much as possible for retirement starting at the outset of one’s career. That said, younger professionals generally have a number of other goals in mind first, such as paying off student loans, purchasing a home, or even traveling around the world. However, not a lot of advice exists on how to save as much as possible for retirement while also working toward these closer goals.

The Importance of Saving for Both Retirement and Other Goals

First, it is important for you to understand why it is important to save for retirement early in life. Putting this money away early allows it to compound for decades and will serve as a good foundation for retirement. Furthermore, there are clear tax benefits for putting money in a 401(k) or IRA, even if it is a small percentage of your overall salary.

Another point that many people often do not consider is that saving for retirement early helps to get them in the habit of investing. When investing becomes routine, you will set up a sizable nest egg for yourself down the road.

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Some individuals may have no clear financial goals other than retirement and wish to funnel all of their savings into retirement accounts only—but this may not prove the best idea.

The tax advantages of saving for retirement have their limit and once the money is in these accounts, it is no longer liquid. You should always make sure you have some liquidity in your investments so that you can put out financial fires without incurring massive penalties for early withdrawals from a retirement account. If you have already met your age-based retirement goals, it could be time to save for a different goal.

The 50-50 Approach to Saving for Retirement and Other Goals

One of the most basic approaches to saving for retirement along with other financial goals is the 50-50 approach. With this strategy, individuals divide the total amount of money they have budgeted for savings each month in half and contribute one part to retirement and the rest to other goals. Sometimes, people may hit their maximum allowable retirement savings with this strategy, at which point they can funnel all monthly savings allotment to other goals for the rest of the year. Before implementing this strategy, however, they should think critically about their particular situation. Some may want to put more than 50 percent toward retirement to take advantage of tax benefits, while others may need to put more money toward other goals at certain points.

The other factor that you need to consider is the percentage of your overall income that you want to dedicate toward savings. Obviously, a higher percentage will allow you to hit your goals quicker, but it is important to have some balance in the budget. This percentage may also change based on circumstances. For example, a couple could opt to increase their savings percentage as they approach their wedding or decrease it if the trip they are saving for is several years away. But remember: this number can be adjusted when necessary, and nothing is written in stone. In general, younger people should save a lower percentage of their salary than more established individuals and slowly increase the rate over time.

How to Increase Total Savings from Overall Income over Time

When you are first starting to save, a good percentage to aim for is 10 percent, especially as you focus on making an entry-level salary stretch and paying off student loans. In this case, 5 percent would go toward retirement and 5 percent would go toward another goal, such as a down payment on a home or an emergency fund.

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Over time, you will get raises or new jobs that pay more. You will also start to pay off debt so that your overall monthly expenses go down. When this happens, it is time to revisit the savings percentage and push it up to 15 percent, and then 20 percent.

Importantly, you should prioritize putting money in a high-return account, and then direct the yield from your high-return account to your savings to diversify your holdings. This lets you weather different kinds of financial crises and emergencies without suffering a complete wipeout of your nest egg.

Typically, around the time that people start thinking about increasing their savings percentage, they will probably also have new savings goals, whether that is a wedding, a down payment for a home, or even just paying cash for a car. Because of that, it makes sense to increase the amount of money put away each month.

Also around this time, people may start maxing out their IRA and/or 401(k) savings, so they will likely increase the amount put toward other goals to more than 50 percent. As you progress in your career, you should continue to increase the amount of money you save, with the eventual goal of saving about 25 percent of total earnings.