Most people understand the importance of saving for the future, but many of us are confused when it comes to knowing exactly how much money we should be putting aside. The fact is, there’s no set rule when it comes to determining this figure. The sums you save will depend on a whole range of factors. Here, we explore some of the issues you should consider when you’re trying to work out how much money to put aside.
How much can you afford?
There are a whole range of savings and investment products to choose from, from basic savings accounts to tax-free cash or stocks and shares ISAs. There are also specialist investment policies on offer, and you don’t necessarily have to pay large premiums in order to take advantage of them. For example, RL360° Quantum provides investors with access to a wide range of funds and it has minimum premiums of £200 a month. Regardless of the type of savings or investment solution you choose, you’ll need to decide how much money you can afford to part with. To do this, it helps to do a careful calculation of your income minus your living costs. If you’re not left with much money once you’ve covered your expenses, it’s worth looking at ways to reduce your costs. Simple things, like looking for better deals on your utility bills or insurance products, could save you substantial sums each month.
Bear in mind that it’s important to pay off priority debts before saving because the interest you’re charged on your debts may exceed the returns you can make on your savings or investments. For example, if you have a lot of credit card debts and other unsecured loans, look to pay these down before you investigate your savings options.
How much money might you need in future?
Once you know how much you are able to save on a regular basis, it’s time to decide what proportion of this money you wish to put away. As a general rule of thumb, it’s a good idea to have enough wealth in savings to cover three to six months of living expenses if your household income suddenly drops. You’ll also need to think about potential expenses further down the line. For example, might you want to make improvements to your property in future years or will you need to cover schooling or university costs for your children?
Consider your retirement too. As well as contributing to a pension, do you want to put extra money aside to help boost your finances once you give up work? You can use online calculators to work out how much money you need to save in order to fund your retirement. The later you start saving for your post-work years, the greater the proportion of your income you’ll need to put aside.
Could you benefit from speaking to a financial adviser?
Working out exactly how much money you can afford to save, what sort of sums you should part with and which savings or investments products are best for you can be difficult. If you’re unsure how to approach this aspect of money management, it can pay off to enlist the help of a financial adviser. These experts will be able to give you the information and guidance you need to help you plan successfully for the future.
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