Many of the reader questions I get here at Get Rich Slowly follow a familiar formula. The person sends me a breakdown of her income and expenses, also sharing how she’s allocating her savings. From these figures, my correspondent wants to know if I’d make changes to her budget.

Unfortunately, I’m not qualified to answer questions as specific as these. (And I don’t have time to answer them all!) That said, there are often certain themes, such as: “Am I saving enough?”

For instance, Kailey wrote recently with the following question. To me, it’s clear she’s saving plenty — but how should she allocate what she saves? That’s the question. Here’s her e-mail:

I’m 25 and about three years into my professional career. I’m pretty diligent about savings and contributing to my 401(k). Of course, I never feel like I’m saving enough, even though I’m fairly confident that I save much more than many of my peers.

One-third of my income goes directly into my ING account for my emergency fund (which is fully funded for approximately one year of living expenses) and now is being used to accumulate money for a down payment on a house/condo. Unfortunately, I live in Southern California, and in an area where that 20% down payment doesn’t seem to be within reach in the next couple of years. In addition to the 33% of my income being directly saved, I also contribute 8% to my 401(k). This 8% allows me to take full advantage of my employer’s generous matching contribution each year. I also have an automatic annual 1% increase to my 401(k) contribution.

The problem lies in that I never feel like I’m contributing enough to either my savings or my 401(k). How many GRS readers actually max out the federal contribution limit of $16,500? I don’t feel that this even seems realistic or attainable on a decent life style. And is it really a good idea to increase that amount by significantly decreasing the amount going into my savings each month?

Taking advice from GRS, I opened a Roth IRA a few month back with $3000 of the $5000 limit. This definitely increases my percentage of income saved. However, it would still be interesting to hear other readers percentages and/or thoughts on my progress given my age.

First of all: Wow! Kailey is saving almost half of her income. That’s awesome. Although she’s fretting over how to maximize her money, I think she should congratulate herself for what she’s been able to do at such a young age. If she continues down this path, she’ll be in great shape twenty years from now.

So, Kailey’s problem is a good problem to have. But if you were in her position, it’d still be a problem. How much should she save for the near future? How much should she save for retirement? These sorts of decisions can be perplexing, and unfortunately, there are no easy answers. Because we can’t know the future, we can’t know what the best choice is for our individual circumstances. Instead, we have to make best guesses based on who we are and what our goals are.

That last part is important. I always preach the praises of conscious spending — the notion that we should spend lavishly on the things we love while cutting back ruthlessly on everything else — but I think there’s something to be said for conscious saving also. (In a way, this is why I’m a fan of targeted savings accounts.)

When you have specific goals, goals that mean something to you, you’re much more motivated to save. If I have a trip planned, I’m more diligent about saving than if I’m saving for some undefined future, for instance.

In Kailey’s case, it sounds as if buying a house is important to her. That’s a good goal, and it will help keep her motivated to save. If I were her, I’d stay focused on that. She’s already putting 8% of her income into her 401(k), plus $3000 a year into her Roth IRA. That’s a good start, and if she can maintain those contributions as she saves for a home, I think she’ll be fine. Then, once she’s accumulated enough for a down payment, she can attack her retirement saving even more aggressively.

Really, though, I don’t think there’s any one right answer in this case.

What do you think? If you were in Kailey’s position, would you save more for retirement? Would you save more for the down payment on a house? How do you find a balance? And, at the same time, how do you make sure you’re not depriving yourself in the present?

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