How much money should I save each month? –
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These days people will always tell you to “save, save save!”🐷
But how much money do you actually need? 🤷♀️
How much money should you have in your savings account? 🏦
And how much money should you “put away” each month? 🐿️
Here is our step-by-step guide to working out how much money you should save! 👣
Disclaimer: This website provides information for guidance and educational purposes only. The Grown-Up School does not provide regulated financial advice. You can seek independent financial advice from a suitably qualified and regulated professional advisor. Check out our disclaimer policy for more information.
How much you should save up 🏆
The amount of money you should save each month depends on 3 things:
- How much money you’ve got saved now ✅
- The amount you want to save up (what goals have you got?) 🏆
- How much you can afford to put away after you’ve paid for all your essentials 🐷
1. How much have you got saved now? 🐷
The first step towards planning how much money to save is to understand exactly how much money you’ve got in savings now. 💰
You should check things like:
- Current accounts (What is a personal current account? 💳)
- Savings accounts
- Any spare cash buried around your house
- Pension plans from work places
- Child accounts/trust funds that your parent/guardian may have set up for you
2. What is your savings target? 🎯
Once you’ve looked at how much money you’ve already got saved, it’s time to look at where you need to get to. 🛣️
Your overall savings target should be made up of 3 things:
- Emergency savings 🚑
- Personal goal savings 🪅
- Retirement savings 🧓
Financial emergencies are a lot more common than you think. 🔥🚒
One minute your bank account seems full – the next you find yourself needing money for things like:
- Unexpected bills 🧾
- Car repairs 🚗
- Pet veterinary bills 🐶
- Increased shop prices 🏷️
- Phone repairs 📱
- Broken fridges/freezers/washing machines 🔧
- Home repairs 🏡
Not only are these events really stressful –
It makes it so much worse when you have to worry about scraping the money together to cover those costs. 😟💸
Having an emergency fund is probably the most important step towards getting in control of your finances. 👣
Having a pile of savings set aside gives you: 🗻💰
- lower likelihood that you need to borrow money in an emergency 💳🧯
- peace of mind knowing that you have something in the bank to cover you 🧘☔
Emergency savings give you a great safety net. 🥅
I mean who here wants to lie awake at night, worrying about their washing machine breaking? 🤔💭🧽
Whilst this is a really important step – it isn’t easy. It takes a lot of patience, work, and self-control to build up emergency savings 🧗♀️
How much money should I save for emergencies?💸
The 3 month rule 3️⃣📆
Some financial experts recommend that you need at least 3 months’ worth of your typical income saved away for emergencies.
This means that if you make £2,000 a month, some experts think that you should have £6,000 saved away for emergencies. 💰
This means that if you lost your job or income, you would have 3 months to fix it before it becomes a bigger problem! 🛠️
If your job or income is less stable, (e.g. if you run your own business!) you may want to consider saving more e.g. 6 months’ worth of income for peace of mind. ⚖️
Did you know?
In June 2021, Yorkshire Building Society found that 1 in 5 UK adults have less than £100 in savings.
If you have less than £100 in savings, it’s a great time to start saving! 🐽
Try to commit to saving a regular amount every month for emergencies. 📆
If it’s a struggle to get money saved quickly, saving 10% of your income might be an easier start. –
For example – if you make £2,000 a month, according to the “3 month rule” your target should be £6,000 in emergency savings.
You could save 10% (£200 a month), and reach your £6,000 emergency savings goal in 2.5 years. 🪜
Having an emergency fund can help you to feel more prepared for the future and financially comfortable.
It could be a good idea to keep your emergency savings in an easy to access, separate savings account, to avoid accidentally spending them. 🏦💸
Personal goals 🪅
Next, think about what your personal goals are that you’d need to save for.
How much would they all cost? 💳
You might want to save towards things like:
- Moving into your own home 🚚
- Decorating a home 🖼️
- Buying a house 🏡
- Getting a car 🚗
- Having children 👶
- Saving for a wedding 👰
- Holidays 🏖️
- Parties 🥳
- Event tickets 🎫
- Getting a pet (vets bills aren’t cheap too!) 🐕
- Large purchases 💸
Do some detailed research to work out how much they’re going to cost in total, then add it to your total savings goal! 🕵️♀️
It might seem AGES away, but the earlier you start to think about getting older and quitting work the better. 💰
This is because:
- The earlier/younger you start, the more time your money has to grow, meaning the more rich your retired self will likely be🪴😎
- People can make a lot of money from retirement plans– would you rather be older with a chance of getting rich, or potentially never rich at all? 🤔💸
- Money from the government (state pension) isn’t enough for a lot of people to live comfortably – planning your retirement and investing in pension schemes can help you to control how comfortable you want to be. 🏖️ (state pension and pension schemes explained below!)
- A lot of people don’t think about retirement planning for many years, by the time they start thinking about it, they’re too old for their money to make a big difference, and regret it when they get older 🧓😭
- A lot of workplaces offer a large amount of money in free pension contributions – who really wants to miss out on free money? 💸🤑
Make sure that your savings goals consider retirement! 🏆
Think about pensions 🧠
In the UK, there are 2 main types of pension:
State pension 🏛️
This is money that you can claim from the government at “pension age” (66-68 years old depending on when you were born). 🧓
You get this money after paying “national insurance tax” to the government when you work. 💼
You need to pay towards “national insurance” for 35 years to get the full state pension money from the government. 🗝️
In 2021/22 people can get up to £179.60 per week as their state pension.
For a lot of people this isn’t enough money to comfortably live off when they retire, which is why they invest in pension schemes/workplace pensions (see below)|⬇️⬇️
Pension schemes/workplace pensions 💼
Pension schemes are a type of long-term savings plan. 🐷
You save some of your money regularly whilst you’re working. 🌱
This gives you money to live off in later life, when you want to work less or retire. 🌳
There are different types of pension schemes —
Some might be set up by your employer, others you can set up by yourself. 🙋♀️
If your employer sets up a pension for you this is called a workplace pension. 💼
A lot of workplaces offer free pension contributions, depending how much you put in. 💸
For example, if you pay 8% of your salary into your pension savings, your employer might double that, meaning every year an amount equal to 16% of your salary is going towards retirement. 💸💸💸
How cool is that? 😲
That could be a crazy amount of free money from your employer, which might grow over time with your pension investments 🤑🪴
Why pensions are important ✅
It is important to consider investing in pensions because they:
- give you a steady income for the rest of your life 🌇
- help to make sure that your family is taken care of financially 👪
- give you security and peace of mind when you’re retired 🧘
- help you build wealth over time (people can make a lot of money from pension investments!) 📈
3. How much can you afford to put away after you’ve paid for essentials? 💰
By now you should know:
- How much money in savings you’ve already got 🐷
- How much money you need saved 🏆
- The amount you need to save on top of your existing savings, to reach your total savings goal 🪜
Next, you need to work out how much you can afford to save towards your goal each month.
Create a budget ✍️
Budget = a financial plan.
In our “How to keep control of your money 💸” article we explain that the trick to always having enough money is to:
“Make a good amount of money – spend as little of it as possible.” 💰
If you create a budget, you can keep an eye on:
- how much money you make 💰
- how much you spend 💳
- where you can increase your income 📈
- what you spend money on 🛍️
- where you can save money 📉
It doesn’t have to be fancy, it can be as simple as asking yourself these 4 questions…
1. How do I make money? How much do I make? 🪙
Write down all of the ways that you make money and how much you make every month.
Maybe use online banking or try out a financial tracker app to help you track your income?
2. How do I spend money? How much do I spend? 💳
Write down all of the ways that you spend money and how much you spend every month. It can be very easy to underestimate how much money you spend so be as accurate as possible!
Even small purchases quickly add up.
Maybe use online banking or try out a financial tracker app to help you track your spending?
3. Do I bring in enough money to reach my goals? How can I increase my income? 🪜
If you think that you’re not making enough money and can make more, write down some ideas to increase your income.
4. Do I spend more money than I earn? Do I spend more money than I need to? How can I reduce my spending? 🛍️
If you think that you’re spending too much money and can spend less, write down some ideas to reduce your expenditure.
The 50/30/20 rule 🍰
One way to work out how much you can put aside for savings is the 50/30/20 rule.
With the 50/30/20 rule, you structure your budget so that you set aside:
- 50% of the money you make for essentials 🥦
- 30% of the money you make for your “wants” 🤩
- 20% of the money you make for your savings 🐷
50% for essentials 🥦
According to the 50/30/20 rule, the first 50% of your income should be set aside for essential things like:
- Food 🍛
- Housing 🏡
- Transport 🚗
- Electricity and gas bills 💡
- Insurance ⛑️
- Loan/debt repayments (How to avoid debt problems 🌪️)💸
- Childcare 👶
30% for wants 🤩
The next 30% of your income, is for things that you want (but don’t need!)
It can include things like your:
- Monthly subscriptions 📺
- Travel ✈️
- Entertainment 💃
- Meals out 🍕
20% for savings 🐷
The final 20% of your income is for your savings goals.
This can include things like:
- Building up emergency savings 🚑
- Saving for retirement (Why you should save for retirement when you’re really young 🧓)
- Saving for your personal goals 🪅
So – for example, if you earned £2,000 per month, your budget could be as follows:
- 50% = £1,000 to cover essentials e.g. rent, food, insurance
- 30% = £600 to cover wants e.g. meals out, entertainment, holidays
- 20% = £400 for savings e.g. building up emergency savings
Once you’ve worked out your 50/30/20 budget, you can set up automatic monthly payments to move your savings somewhere separate from your needs/wants money. 🔁
This can make it easier to keep track of your savings, but also help avoid the temptation of spending your money! 💳
But I can’t afford my goals, what should I do? 🤷♀️
When you look at your money left over for savings, you might notice that it’ll take a VERY long time to reach some of your goals.
If you can save £100 a month it’ll take you:
- 6 months to save £600
- 1 year to save £1,200
- 1.5 years to save £1,800
- 2 years to save £2,400
- 3 years to save £3,600
- 4 years to save £4,800
- 5 years to save £6,000
If you have a bank account that pays you interest (What is interest? (easy explanation) 📈), your savings can grow more quickly, but saving can still be slow and difficult!
If you can’t afford your goals, there are several things you can do to help:
Change your goals 🏆
One way to make your goals affordable, is to change them to things that are affordable!
Do you really need a brand new sports car, or would just a car do? 🏎️
Would having a staycation holiday be good enough, instead of going abroad? 🏡
Think about the cheapest way you can still achieve the goal, without it feeling like too much of a compromise.
Earn more 📈
If you don’t want to change your goals, it might be worth considering how you can earn more money to help achieve them!
Check out our articles below for some of our best ideas for earning more money.
Spend less 📉
If you don’t want to change your goals, it might be worth considering how you can spend less money to help achieve them!
Check out our articles below for some of our best ideas for spending less money.
Create a longer timeline for saving ⌛
If you’re keen to reach your savings goals quickly, it might seem like your goal is unaffordable when you set tight deadlines like 6 months or 1 year.
Instead, why not create a longer timeline to reach those goals? 📏
So that’s it!
To work out how much money you should save each month, you should:
- Check how much you’ve got saved now🐷
- Work out your savings target🎯
- Calculate how much you can afford to put away after you’ve paid for essentials💰
If you know any friends or family members who might benefit from learning about how much money to save each month, share this post with them!
Finally, don’t forget to check out our similar articles below!
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