How much to save?

Seeing as I recently posted what the average UK household savings ratio is (about 7% currently, which is the long-term average), I figured this would be a good time to introduce the first of a series of "Money Rules".

I must also give credit where credit is due - I did not come up with these Rules myself - I must thank Adrian over at http://7million7years.com/. (I'm not sure if he came up with these himself, but that's where I found them). I first came across his blog just over a year ago and have digested many of his hints and tips and have become better at managing my finances and richer as a result.

Here are the Rules / thoughts I have found extremely useful when Saving:

1) Only save if the interest you can earn is greater than the interest you currently pay on any debts. e.g. if you have a Credit Card at 20% APR, pay that off first. It's vital to get rid of any debts (excluding mortgage or UK student loan) before starting to save.

2) Think of saving as "paying yourself" and make this a priority above other things like rent, mortgage, bills etc.

3) The more money you earn, the greater % you should save. Here are my suggestions (figures are before tax):

  • <£20,000 pa = 15% of your take-home pay
  • £20,000 - £30,000 = 20%
  • £30,000 - £100,000 = 25%
  • £100,000 - £200,000 = 30%
  • £200,000 - £300,000 = 35%
  • £300,000+ = 40%

As you can see, this is much higher than the UK average of 7%...

4) Add the savings figure / amount you choose in your monthly budget.

5) Any money left over after all your bills and savings are taken care of can be spent guilt-free!


This last point is important - money is for spending, but it's vital that you are able to balance the ability to save without developing guilt when spending. On the flip-side, it's vital that you get out of any "addiction" to spending and realise that, if you want to get richer / escape the rat-race / retire early you need to rein in the spending and force yourself to "pay yourself first".

I used to save only if I had some specific object in mind - a TV for example. The key idea here is that you are saving not for something but someone - you. You are saving so that your future self can stop working / travel the world / give to charity / live your dream / retire early / "beat the system" or whatever your motivation is.

As for the details such as what sort of savings vehicles to use (cash, property, pension etc.), I will explain my thoughts on this in a later post. For the moment, just starting to save the suggested amounts into your current account or a savings account is the most important thing.

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