What Percentage of My Earnings Should I Save?
When it comes to securing your financial future, saving money is the best approach to take. To help you out, here are some tips for calculating the right savings for you and your family. Although financial organisations and websites often offer advice on different saving schemes and funds, knowing how much to save can be a trickier thing to figure out.
The Recommended Percentage
There are a number of opinions when it comes to the percentage of income you need to save. Generally, these tend to range from 10% to 30% of your income. Obviously, the more you're able to save, the more secured your future finances will be.
Most people look at savings in terms of saving for retirement, but it's also good to save so you can cover any unexpected expenses you incur too.
How Much Can You Save?
Before you answer the question "how much money should I save?", you should consider your current financial situation. Understanding your situation can help you make better decisions and establish the percentage that you're able to set aside.
Write down all your income and outgoings on a monthly basis. You can then clearly see how much money you have left after you’ve made all your essential payments. See how much you could set aside for your savings each month and calculate yourself a budget to ensure you stick to your plan.
Start by Paying Off Your Debts
Before you start saving more money, you want to focus on paying off your debts. The interest payments for debts can end up damaging your finances a lot more than not being able to save a specific amount of money each month.
Look to get rid of any so-called priority debts you might have, such as income tax, VAT, gas and electricity, TV licence and any possible court fines.
How Much to Save for Retirement?
Once you’ve created a budget and sorted out any debt repayments, you need to start thinking about your retirement.
Consider how much money you want for your retirement and then calculate how much money you should save. You can use online calculators, like the one provided by Money Advice Service, to calculate your pension saving plan.
Different pension plans are perfect ways to save money. Not only are you securing your financial future, but you can also save tax-free! Therefore, you want the majority of your savings to go towards your retirement.
Preparing for the Rainy Days
As noted earlier, you should also consider having some money set aside for "rainy days" and unexpected expenses. Life can be unpredictable and you want to make sure that money isn’t causing you problems during tough times.
Life insurance and health insurance policies are also worth taking out; this isn’t saving in the traditional sense, but they could spare you an expense down the line. They also guarantee support for, not just you, but the whole family in case something bad happens.
In addition, it might be a good idea to set a small percentage of your savings to an ISA or another savings account for unexpected expenses. Saving even 2% of your income monthly can be a great way to guarantee small setbacks don’t leave you needing to incur a debt or consider other financial options.
Find out more recommendations on how to best save money with 50 Tips On Saving Money: Ways to Save Money.
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