How much to save?

If the recent economic recession and stock market crash of 2008 has taught Americans anything, it's that you can't count on your house or your investment portfolio to make money for you all the time. The lesson? You need to save some money! In 1975, the personal savings rate for Americans hit a high of 14.6%. As recently as 2008, the savings rate dropped below 1%, but has since climbed to around 4%. Why have personal savings rates dropped? Two main reasons. Number one: easy credit. Before most Americans had credit cards, people had to save before they bought something. That's right, it was customary to pay cash for just about everything, even cars! Now that most people can qualify for a credit card, people have learned not to save because they can buy on credit and pay off over time. The second reason people stopped saving as much is due to something called the "wealth effect". When stock and mutual fund portfolios soared in the late 90's and home prices spiked in the period from 2000 to 2006, this created a lot of money for the people who were either shrewd enough or lucky enough to sell at the right time and realize their profits. People basically said to themselves why should I save 10% of my income when I can make 30% in the stock market or 100% in real estate over a 5 year period! But as home prices declined after 2006 and the stock market crashed 37% in 2008, suddenly this line of thinking was flawed. Prudent financial advisors will tell you that you need to put away at least 10% of your gross income into some kind of savings vehicle. For those that lost a lot or never got in the habit of saving, they might need to sock away 15-20% to make retirement feasible. Depending on your income level and desired lifestyle during your retirement years, coupled with the fact that people live longer nowadays, you might need $1-2 million in the bank by the time you retire. So stop buying those afternoon lattes and skip the sales at the shoe stores, you need to look at where you are spending your money and start saving more of that green!