June 4, 2020
Looking to save money for a holiday or in the long-term? Here are our tips on how much money to put aside every month to reach your goals!
The idea of saving money is simple enough: every time you get paid, squirrel some money away to save for an overseas trip, or a new car, or something you've been looking forward to. But to be an effective saver, it's worth taking a step back and asking yourself "how much should I save each month?"
Defining your saving goals every month will assist with keeping you on track and making sure you're not putting so much money aside that you'll dip into your savings each month.
There does exist a generic rule that is a good starting point when you find yourself asking how much you should set aside each and every month. And that rule states that you should put aside at least 20% of your income. This is based on the 50-30-20 budgeting method, which advises that you spend 50% of your income on essentials (rent, food, etc), save 20%, and leave 30% of your income for optional purchases.
However, that blanket answer might not be in-depth enough for everybody. Here are some other ways you can determine how much money you should be saving each month.
Give yourself some time to sit down and look at your financial goals in 12 months, in less than a decade, and in the very long term. These are the 3 general jars into which you'll be putting your savings.
Short-term goals are goals that you wish to achieve within 12 months or less. This could be a holiday interstate or overseas, or simply making sure you have enough money to pay for birthday gifts for the year. You might even just want to save money for emergencies. If you wanted to take a $5,000 holiday but wanted to save the money for it in 8 months instead of 12, you should put aside approximately $625 a month to reach your goal.
Long-term goals are goals that you want to achieve in under a decade. This could be buying a new car (without needing to use a credit card!), replacing your television or other appliances around the house, or saving up for a deposit on your first home. By understanding the timeframe for each goal, you can better determine an answer to the question "how much should I save?".
Very long-term goals are those that are far on the horizon but are still very much worth considering. This could be saving for school for your child or purchasing your second home. Or perhaps an around-the-world trip to celebrate your retirement. Even if you just put aside a little extra money from each paycheque, you'll find it really adds up over time.
As retirement is partly compulsory in the form of superannuation savings taken out of your pay, you should not have to worry about this too much – but always feel free to make independent payments where you can, as this will be beneficial when tax time rolls around.
But maybe all the above does not apply to you and you just can't manage to save that golden 20% each month. First of all, you should know that there's no problem with that; each person's living situation is different, and sometimes life just throws you a few (financial) blows.
If you're in this situation and worrying about how much you should save every month, just remember: some savings are better than none at all. According to a July 2019 study conducted by financial website finder.com.au, around 46% of Australians live paycheque to paycheque with no financial cushion available. But even if you can only put aside $20 a month, that's still over $1,000 in savings in 12 months.
Make sure you adapt to your financial situation over time, though. If you manage to secure a raise or move into a new job that pays more, be sure to save a little more money each month.
The question of "how much should I save?" inevitably leads to this follow-up question, and it's a great question to ask. If you're looking for some money-saving tips, here are a few places to start.
You might want to go out for drinks every Friday with friends, but do you really need to? Look at your priorities: would you rather put money into dining out every week, or try and save that money and dine out in another country by the end of the year?
Trying to save money by being frugal often gets confused with being cheap. Being cheap means getting the lowest price possible, but being frugal means lining up your spending with your values, i.e. not sacrificing the quality of your life to save money. This could mean:
We hope you've found these tips useful for becoming a savvy saver. If you need a helping hand, you can contact us to discuss a small express loan today.