Are you a saver or a spender? Do you tuck away some money each month in case of emergencies? Are you saving up for your retirement? Or, do you blow your paycheck the first week and then have to scrimp until the end of the month? Whichever side of the fence you’re on when it comes to saving, here’s what the experts say you should save every month.
The 50/30/20 rule
There is a popular rule that many money experts swear by, called the 50/30/20 rule. Basically, this means that 50% of your salary should go on living costs and essentials, such as your rent, bills, and food. Then, 30% should go on your ‘disposable income’ or ‘discretionary spending’ every month. This is your entertainment, clothes, vacations, and that kind of thing. Finally, you should be saving 20% of your salary each month! According to research, this is the percentage you need to save if you want to be living comfortably when you retire.
At least 20%
However, some experts don’t believe that saving 20% of your salary each month is enough – and, in fact, many argue that that’s the very minimum you should be tucking away into a savings account every month. However, this all depends on what kind of thing you’re saving for and whether it is actually achievable. Nearly all financial experts will actually tell you that it’s better to be saving what you can afford, even if that is less than 20% than ending up in debt because of it!
Not all savings should go in one pot, and it’s important to know what is put aside for specific goals. For example, around 10-15% of your savings should go toward your retirement fund. If that sounds scary, ask your employer if they have an employer match scheme. That way, you can put in 5-7.5%, and they’ll match it. You should also have an emergency fund that can cover around 3-9 months of emergency living costs, just in case you are to fall ill or be unable to work. Finally, open a savings account for all of those big goals you have in life; such as buying a house, a new car, or that dream vacation in Aruba.
How to save
While saving 20% of your salary may sound daunting, it doesn’t have to be difficult to achieve. Nowadays, you can set up an automatic deposit from your checking account into a savings account that comes out on payday every month. You won’t even notice it’s missing! There are also plenty of smart apps that can help you save a little bit of money each month, by taking out what it knows you can afford.
Not everyone has money to save, and it’s important to remember that you can only do what is right for you. However, according to the experts, we should all be putting at least 20% into a savings account right now. We’re just popping to the bank…