How much should I save each month?

The amount of money you need to save each month varies because there are different factors to consider for each person. These include income, rent or mortgage, debt, how many kids depend on you and other financial commitments.  

That said, the rule of thumb is to save 15% - 20% of your income. Most of this (half to three-quarters) should be set aside for retirement accounts like an ISA or pension. And the remaining savings should go towards building an emergency fund, paying off debt and other financial goals.  

But first you need to determine what is realistic. If you can only save 5% or 10% of your income, then save that and divide as necessary. However if that’s the case, consider looking at other areas of spending you can pull back on to increase the flow of savings.  

If you want a more individual calculation for your savings, read on.  

Step 1: Pay off debt 

If you have debt, it’s better to put most of your non-retirement money towards paying down the debt before putting it towards any longer term savings goals. Debt is expensive, and interest payments can quickly overtake your savings.  

While meeting all minimum payments, pay off your highest interest debt first, then move on to the next highest. Once your debt is all paid off, or very nearly paid off, you can responsibly start to focus on building an emergency fund or other savings goals.

For more information on how to clear debt, read our 4 step guide to becoming debt-free..  

Step 2: Build an emergency savings fund 

Once your debt is paid off, you should, at a minimum, have an emergency savings fund account that totals at least three months of expenses. This is the first line of defence you have against debt and falling back into step 1.

It’s hard to over-stress how important an emergency fund is. Unexpected expenses happen to the most careful of us, and it’s important to be prepared. Some of the most common reasons for using an emergency fund is job loss, home repairs, car repairs, and moving expenses.  

If you have money saved that you can immediately set aside into a dedicated emergency fund, that is a great start. But for most people it can take several months or even years to create this fund. It seems exhausting but it’s worth it. 

For more information about emergency funds and how to build yours, read our guide on how to build an emergency fund.

Step 3: Save for short term and long term financial goals 

Once an emergency fund is set up, it’s time to determine how much to save. This depends on your goals. Many people have short term, mid-term and long term savings goals. 

Short term goals are those that will happen within a year, such as a vacation or Christmas and birthday shopping, or even adopting a pet. Mid-term and long term goals are often big purchases like saving for a house deposit or buying a car, having a baby, planning a wedding or savings funds for a child’s university.  

To give you a sense of what you might be saving for, the average deposit put down by first-time buyers was £43,433 in 2018, at the average age of 31. (See Things to know before applying for a mortgage and The hidden costs of buying a home). The average UK wedding cost is around £15,000.  

Write down your target amounts and deadlines. Once you know how much you will need to save in total, and roughly how soon you want to meet this goal, you can then break it down to a monthly average. For each saving goal, simply divide by the number of months until your target deadline. 

Make the most of your savings by putting them in the appropriate account 

Not all savings accounts are made equal. Some give you a higher interest rate on money saved in them. And with very low interest rates in the UK, this is an important feature to keep in mind.  

Your savings account options range from high to low risk investing to depositing money into a high interest savings accounts. You can learn more about the pros and cons of those options here.

How much should I have in savings – how to find the magic number 

Determining the actual amount you can save each month is more complicated than simply subtracting necessary expenses like rent and electricity bills from your income. You will have unnecessary expenses that you won’t be able to easily cut out of your life. 

To determine what you can realistically save, you need to understand how your income is already being spent across all spending categories. You may be surprised where your money is going, and that’s the first step to deciding where to spend less – and put that money towards your savings goal instead. (For more on how to set achievable saving goals, read this.) 

While this can be done with pen and paper, it is far easier, efficient and accurate to use an open banking app like Money Dashboard Neon. These free apps securely connect to your credit cards and bank accounts to track and categorise all spending for you, breaking it down over days, weeks, months and years.  

Money Dashboard Neon can then help you determine how much you could save each month by looking at your Spending Plan. This feature works out how much you have left after all scheduled payments then you can easily set up a budget to save a realistic amount each month.

What if I can’t save enough?

If the amount you want to save, and the amount you actually can save don’t add up – leaving you with a shortage of savings, there are some steps you can take.

A lower-than-optimal income is most likely your biggest problem. If that’s the case, consider getting a side hustle, changing your job, learn new skills, and automatically saving any salary raises and living as though you never received it. For tips on how to earn extra money in your free time check out these articles from our Blog:

The next biggest problem in reaching your savings goals is overspending. Many of us spend a bit too liberally on unnecessary items, or items we try to justify as necessary. If you are serious about meeting your savings goals, you will have to revisit your spending patterns.

Some quick and dirty ways to cut down your expenses are:

  • Switch energy suppliers – it’s fast, easy and usually a lot cheaper
  • Use petrol comparison sites to find the cheapest prices in your area. This adds up.
  • Buy own brand products for less money, and always look for discounted items 
  • Don’t buy cold drinks and bring a reusable bottle of water with you everywhere. This personally saves me money every week
  • Cook at home and pack lunches for you and the family when going out. Bringing a bag with apples, a loaf of bread and some cold cuts, or peanut butter and jam has saved my family loads of money over the years
  • Review all your subscriptions and cancel the ones you haven’t used in a while – or switch to family plans where available and sensible 

Visit these links for more advice on how to save money on household bills and how to stop overspending

Create savings rules to help you save more and meet your goals 

Saving up for a bigger purchase may take years, so make sure you keep track of your saving journey and aren’t blown off course.  

Income is a clear factor in determining how much a person can and should save each month. But so is attitude and determination. There are high income individuals with no savings (called Henrys) just as there are low income individuals with no savings– no matter who you are, saving requires a degree of self-control and planning.

There are many saving methods proven to help you stick to any savings and spending-reduction plan. For example:

Struggling? You’re not alone 

As you age your savings, and the amount you can save each month, should rise. And generally older people do have more in savings than younger people.  

Unfortunately, overall, a third of the people in the UK have less than £1,500 put away — do not take guidance or comfort from this — for most people this is worryingly low.   

Creating a saving account of any size can bring relief and flexibility into your life. If you need qualified help to plan for your financial future, contact an agency like the Citizens Advice Bureau, which can suggest appropriate steps and help you customise your path to a financially secure future.

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