The age-old question of ‘how much should I be saving’ has always been a problem. Everyone has weighed in on this, from Forbes and Investopedia to the Citizen’s Advice Bureau, and while there are some similarities in what’s being said, there is a fair amount of variance in what how much everyone things you should be saving.
A cursory glance of the internet will tell you that your finances should be split 50/20/30 – that’s 50% of your income spent on your daily necessities – your food, your rent, your utilities and the cost of getting to and from work. The 30 here accounts for your lifestyle spending – 30% of your monthly budget spent on gym passes, movie tickets, hobbies and internet/phone bills. This just leaves the 20 – the 20% of your income which you should apparently be saving, either for a rainy day, your debt repayments or your eventual retirement.
The problem with the 50/20/30 budget is that, like with all budgets, what’s good for one is not good for all. Someone who lives hand to mouth won’t have the luxury of putting away 20% of their payslip every month, and not everyone spends 50% of their pay on necessities – depending on where you live and how many you support, this could be significantly higher. The question, therefore, becomes how much money should I, personally, be saving every month?
The answer to this question will depend entirely on your degree of financial freedom. Some people will say that 10% of your income is an admirable figure to work towards, but this fits the same problem that a one-size-fits-all, even as a percentage of income, doesn’t actually work. There’s no magic number that you need to put away each month – the future is based on so many unknown variables that the precise number is impossible to work out. Instead, you should simply be doing the best you can do each month.
Your best will, again, vary depending on your particular circumstances. In order to figure out how much you should be saving, you should start by writing out your monthly budget. This should start with the amount of money you have coming in every month, and run through your expenses starting with your priority debts – your rent, mortgage and any loans you owe money on. This should then work through your non-priority debts, your food spend, and the money you spend on luxury items. Once you have finished this, you will see the amount that you have left to save.
To start with, your leftover funds should be spent on paying back your bills. If you’re already struggling to pay back your debts, and you don’t have any money left at the end of the month to put towards repayments, it may be worth considering debt relief options. Depending on where you live, there are a number of options open to you, including IVAs in England and Scottish Trust Deeds in Scotland. These will consolidate your debts for you, getting you debt-free quicker so that you can start working towards saving for your retirement once again.
Once you have money to put towards your retirement, anything that you can put away will start gaining you interest. Even if this is less than 10 or 20% of your income, every little helps. It will all add up at the end of the day, leaving you with enough money for the eventual broken fridge, impromptu holiday, or that surprisingly expensive holiday for your kids.