How much money should you be saving each month?  50% of your wage? £50 a month or nothing until you can afford it? This is a common question that people often ask. It is not a surprise to say that it is wise to save money. However, it could be easier said than done.

In an ideal world, you would save as much as possible; there is no set amount as every person has different incomes and outgoings so there is no way of telling you an exact amount that would work for everyone. However, there are some rules and strategies that some people swear by.

The 50-30-20 Rule

You may have heard if the 50-30-20 rule but if you haven’t here’s how it works. Looking at your monthly income after tax, your aim should be that 50% of your income goes towards your essentials including housing, food and all monthly bills; mobile phone, utilities and loans.

Then, 30% of your income is going towards your “wants” such as travel, clothes, entertainment. ‘Wants” are things you could live without, but they enrich your lifestyle.

With the remaining 20% of your income ideally you should save it either for retirement, emergency savings or for something in particular that you are saving for like a down payment on a house.

If the 50-30-20 rule isn’t going to work for you, maybe your outgoings make up more than 50% of your income, then you can alter it based on what your incoming and outgoing are. As an example, if your outgoings are more than 50%, you may want to cut your “wants” to 20% or even 15%. However your finances work out, you should try to put aside at least some part of your income even if it is as little as 5%.  

Sort your savings out

Once you have worked out how much of your income you can save, now it is time to sort out what you are putting your savings towards. There are lots of free savings accounts with reasonable interest rates that you can find online. The first thing you should prioritise before anything else is building up an emergency fund. To work out how much you need in this account is to look at your essential monthly “needs”. This is the bare minimum that you need to ensure all bills are paid for, you can buy minimal food and your mortgage is paid for. Once you know this figure, experts suggest you should aim to save for anywhere between 3 to 6 months worth of essential expenses.

Once you have saved at least three months worth you could then focus on paying high-interest debts; including credit cards, loans etc. as these can end up costing you a lot of money in the long run. Once all debts are paid off, or you don’t have any, you can focus on saving towards any goals such as putting a deposit on a house, or a major holiday. It is also crucial that you are directing some of your income into a retirement fund. At this point you may look into putting half of your savings into a retirement fund.