It seems as if every month, there are a million things we need to do with our money.
There are bills. There are expenses, little things like food. There’s entertainment, tax, super, debt repayments, shopping. And then somehow, in the middle of all of that, we need to save money.
So how much money should you save each month?
Experts say 10% of your income is a good indicator. That’s easy enough to work out- everyone can calculate 10% of their income. Every time you get paid, immediately put ten percent in your savings account.
The appeal of this simple formula is that it will, by definition, keep pace with your increasing salary. Setting a dollar amount every week is a reasonable approach, as long as it is reevaluated often. If not, then the chances are you’ll end up earning at a higher rate and saving at the same rate, leaving you worse off in the long run.
Another website I found suggested that 10% of your income should be saved for retirement, and another ten for general savings. If your income can stretch to that, it’ll never hurt to have that little bit extra set aside for your elder years.
Miriam Caldwell from About suggests that another good indicator is how your money feels. Do you have lots to throw around? Are you in despair because you haven’t left the house in three weeks, and can’t afford a lollypop due to your stringent saving measures?
A good feeling is tight but not uncomfortable. You want to feel like things are a bit constrained, and you definitely don’t want to be able to throw money around. That said, feeling like you have no money all of the time is a miserable feeling. The longer you persist, the more likely you are to bust out in an expensive fashion. Saving has to be realistic and for the long haul, else you’re unlikely to get anywhere.
Once you’ve saved ten percent of your income for a while, think about increasing it. For instance, if you’re living at home with the olds but working full time, you’ve got more space to save than someone with three kids and mortgage. Increase the percentage you save per month and see how you go. You can always drop back if it’s proving too difficult. Increase it until you reach a point, which is both realistic and going to result in reasonable savings.
Saving money for no purpose doesn’t lend itself to much success. After all, you can spend it on anything and may well do so if you don’t have a plan for what you want to do with the money. Your first goal should be the emergency fund- 3 to 6 months of living money should anything go pear-shaped. Then think about what else you need to save for- a house deposit, a new car, your retirement. Have achievable goals, and mark down your progress.
People tend to be either/or about debt and savings but a smart financial decision would be to try and conquer both. 10% of your income to debt, and ten percent towards saving isn’t a bad approach. If you can bolster your savings, you’re less likely to have to increase your debt should the unexpected happen.