How Much Money Should You Really Save Each Month?

Saving money can be quite a difficult thing for many people to achieve. If you do manage then knowing how much to save can be even more difficult. It is worth taking a number of things into consideration when you are thinking about how much to save.

What debt you have

It is wise to start by thinking about what debt you have. This may seem irrelevant to saving, but if you have debt then it will be costing you money. It can be wiser to pay off your debts with a loan from rather than saving money. This is because savings accounts usually earn less interest than you will pay in interest on a loan, although you would need to check. This means that you will be financially better off in the long run if you pay off the debt compared with saving. So you need to consider whether it would be better for you to concentrate of paying off debts rather than saving anything at all.

How much you earn

Obviously the amount that you can save is determined by how much you earn. You will not be able to save more than you earn obviously and you will need to have enough money to pay for the essentials before you even think about saving. The more you earn; the more potential you have for saving. Some people also like to have a few months’ salary saved up, just in case they lose their job and so this could also be a consideration when thinking about how much to save.

How much you spend

The amount that you spend will limit how much money you will have left to save. Everyone has a mix of things that they spend money on and they can be split very simply into essentials and luxuries. Essentials would be things like rent or mortgage, food, water, energy bills, loan repayments, travel to work and any payments you have that are part of contracts. Luxury items would include things like holidays, jewellery, homewares, alcohol, eating out, days out and similar items. There are some items that could fall into either category, such as clothing; as you need it but may buy items you do not need, cars, as you may need one for work but may choose to have an unnecessarily expensive one and electronic items; as you may need a phone to socialise and communicate but may not need such an expensive one.

Reasons for saving

It is worth thinking about what your reasons for saving are. If you are saving up for a specific event which has a fixed price and is taking place on a specific date, then you should be able to calculate exactly how much you will need to save each month. However, if you do not have anything specific in mind or are not concerned as to when you want to buy it, then the amount you save is not so important.

As much as possible?

It may be thought that you should just save as much as you possibly can. Although this sounds sensible, it is actually often not the best strategy. Often this will consist of waiting until just before you get paid and putting any money left in the account into your savings account.
Unfortunately we tend to look at what is left as the month goes on and spend what we can afford to and this means there is often not much left by the end of the month. It can therefore be more sensible to save some money when you get paid. Calculate how much you are likley to be able to afford to save considering how much income you have and how much you will need to spend on necessities, then you can work out the difference and set up a direct debit to save the difference just after you are paid. If you put the money in an instant access account, then you can always get to it should you need to, but do try not to.

So the amount you can save each month is very personal. It is best not to think about it as a percentage of income or a percentage of spending but calculate what you can afford to save. However, if you have a specific goal for your saving, then you will need to work out a way to either earn more or spend less so that you can afford it.

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