When the savings bug hits it can be a powerful force. Whatever the reason behind the desire to save more, the thrill of making like the proverbial squirrel can make it all seem rather exciting 🐿
Yet no matter how proud we may feel of our efforts, there's always some financial 'expert' warning that it is not enough. Which begs the question... how much should we be saving?
Like all the big questions in life, the answer to this one is not clear-cut. So, if you're looking for some advice, considering your current life stage, broad objectives, and timescale for reaching them 🤔
The 'Old Skool Rulez'
Ok... perhaps the above sounds like a bit of a cop-out 🤷♂️ In that case, here's a broad, one-size-fits-all, rule-of-thumb (and any other clichéd terms you can think of) answer for you!
Basically, you should aim to save roughly 20% of your post-tax income.
Sounds like a lot, right? Well, it is! But it isn't just any random number. This rule was developed by Harvard Bankruptcy expert, Elizabeth Warren.
So, whilst it's clear she knows her stuff... for many of us, trying to save such a high percentage of our earnings is simply not feasible. If that sounds like you, then you may wish to skip straight to the next section 👇 But if you'd like to hear more about this ratio driven approach then read on!
The figure of 20% is taken from the '50-30-20 rule', which specifies that you should use 50% of your income for necessities, another 30% for your wants, and the remaining 20% for savings. If you'd like to learn more about this, then you can check out our earlier article on money management tips! 📕
Of course there are certain other factors to consider when applying this 'rule', as you may find you need to tweak the ratios depending on your own situation 👇
The amount you can save will be dependent on your age, because many of us will spend our 20s paying off student debt and building a career 🚀 It also stands to reason that it's harder to save if you live in a big city, which can provide better job opportunities, but where prices tend to be higher too 🏙
So if you're still in the early stages of your career living in a large metropolitan area... we feel you! In this case you may wish to consider moving a proportion of your income from your wants category (or, worst-case scenario, your savings) to your necessities. Just remember to readjust when you land your next big promotion 👩💻
A Fresh Approach
Although it can be helpful to get a steer as a benchmark, becoming too fixated with a specific proportion or monetary amount that you are supposed to save each month is rarely positive 🤯
A more constructive approach may be to start with some simple yet effective tips for healthy saving habits. The trick is to make sure that you find techniques that fit in with YOUR lifestyle 🏂
Saving little-and-often is the most effective technique we can recommend. This forms the habit, and ensures you keep a regular cash-flow while you're finding the right balance ⚖️
The approach is even more powerful if you can find a way to automate the process so you don't even need to think about it 🤖 Not only is this a proven way to boost the amount you can put away each month, it also happens to be one of the principles on which Plum was founded.
Another helpful technique is to ensure you have a place where you can squirrel the money away 🥜 Out of sight... out of mind, as the saying goes. So, setting up a separate account where you can store your savings may also help you avoid the temptation to dip into your pot unless absolutely necessary.
It was our desire to combine financial techniques like these in one easy-to-use package that inspired us to create Plum. Our automatic money-stashing algorithm will analyse your transactions and set aside a small amount, every few days, which will be transferred to your Plum account. We can also help you invest your money, if you decide that you would like to try and grow it for the future 🌱
To learn more about Plum's automatic money-stashing tool check out our website.