How much should you have in your savings account?

How much you should have in savings most commonly comes down to your income, expenses and age. Some people follow some general rules of thumb, such as people under 35 should aim to have at least three months' salary in their savings account. While those over 35 should aim to have six months' salary in their savings account per year. However, this isn’t always possible for many reasons, including socio-economic circumstances, not having a secure income, changes in your circumstances, unexpected expenses and external financial pressures. For example, no one could have predicted the emergence of a global pandemic, which threw a spanner in the works of everyone's savings goals and plans. 

If you’re able to follow basic financial principles like the ones mentioned above, they may help you be prepared for unexpected changes in circumstances. This could encourage you to save so that you have necessary funds available if you were to lose your job or are unable to work due to illness or other changes in your circumstances. After all, your basic living expenses - such as rent or mortgage payments, utility bills, and grocery bills - don’t end just because you’ve been forced to stop working. 

Besides saving for a rainy day, you could also try to live within your means to make your money last longer. While a credit card or a buy now, pay later (BNPL) service can help you buy what you want and delay the pain of paying for it. It can also lead to you racking up debts that you could struggle to repay if you’re not careful. 

If you find it difficult to stick to a budget and use a credit card or BNPL service to pay for your shopping, you could consider using your debit card instead to avoid piling on the debt. If online shopping has you hooked, you could try to keep it under control by putting the things in your cart and waiting 72 hours before hitting the check-out button. This gives you time to think about whether you really need the items or you were simply indulging in some retail therapy.

There isn't a specific set number for how much money you should save each month. The 50/30/20 rule is one popular way of determining how much you should save. The 50/30/20 strategy suggests 50 per cent of your monthly income should go towards basic living expenses like rent or mortgage payments, food, and other essential bills. 30 per cent of your income can be spent on non-essential items like entertainment, dining out, and weekend getaways while the remaining 20 per cent of your monthly earnings should be set aside for savings.

For example, if your monthly income is $6,000, the 50/30/20 breakdown would advocate $3,000 for essentials, $1,800 on fun and $1,200 for savings. Don’t forget to increase your savings if your income increases. If you follow the 50/30/20 rule and your income goes from $6,000 up to $7,000, the amount you put into your savings should increase from $1,200 up to $1,400.

Of course, this isn’t the only strategy out there, so you should research and experiment with different methods until you find a plan that works for you. You might even be able to save more than 20 per cent of your monthly income. However, aiming for at least 20 per cent isa good start.

You can also calculate how much you need to save according to your future goals and aspirations. For instance, you may want to save for a house deposit, or save for a car or a vacation abroad. Depending on what you want to save for, you can calculate how much money you’ll need to make your dream come true. The other option is reviewing your household budget to cut down unnecessary expenses. You can then put whatever is leftover, after paying the necessary bills, into your savings. As discussed earlier, you could try to commit to putting at least 20 per cent of your income into savings as per the 50/30/20 strategy.

If you’re just starting to build your savings, it may help to set a savings goal. Say you want to build an emergency fund that’s six times your monthly salary. Using an online savings calculator, you can find out how long it will take you to reach your savings goal according to the monthly savings you intend to make. You can also compare high-interest rate savings accounts to help you grow your savings faster. You should make sure to read the Product Disclosure Statement (PDS) to be aware of any additional fees or conditions that may come with the account.

Once you’ve worked out how much you want to have in your savings account and how much you can afford to put aside each month, you’ll need to work out how to accomplish these goals. Here are some simple ways to start:

1. Automate your savings

An automatic savings plan is a great way to increase your savings. You can either set up a direct debit or see if your employer will split your salary and put some of your earnings directly into your savings account. This way, you're saving without having to make any manual bank transfers.

2. Maintain a separate savings account with a high rate of return

Do your research and find a savings account with a high interest rate. Check the terms for these accounts, as some require you to meet or fulfill certain conditions to earn the highest rate.The higher your savings account interest rate, the faster your money will grow.

3. Look for ways to reduce your expenses

Do an audit of your current finances to see where you can cut back. See if there are any regular payments or expenses, such as unused gym or streaming subscriptions, that you can cancel or save on.

4. Discover new ways to boost your earnings

There are many options for you to earn some extra money that you can then use to boost your savings. You could consider a side hustle, selling items online, renting out a spare room or car space, using your car for ride-shares or food delivery, or even freelancing.

5. Find out if you can get a better deal on your bills

You may not regularly check to see if your mobile, internet or energy provider is still the most competitive in the market, but doing so can save you money. Compare the current offers in the market and use the information to get a better deal from your current provider or make a switch. You can save money on everything from your health insurance to your electricity bill.

6. Bank your pay rise

A raise is always good, but spending more because you have more isn’t always a smart option. If you’ve lived comfortably with your current salary, why not put that extra money to work by stashing the extra cash in your savings account. Using your raise to boost your regular savings plan can help you significantly increase your balance.

7. Save your bonuses

If you receive any sort of financial bonus or incentive from your employer, think about how you could use it. Rather than just spending it on something you want, you could consider putting your bonuses into your savings. This will then help you reach your savings goals sooner.

8. Transfer your credit card payments to savings once you're debt-free

If you've been making monthly payments on a credit card and successfully paid off the debt, you’ll have some extra money each month. You could consider continuing the automatic payments but instead sending the money to your savings account.

When it comes to saving money, it’s always a good idea to try and save as much as possible and as often as possible. The best way to ensure you build your savings is to put the money in a separate account, preferably one that earns high interest. It may seem difficult initially, but once you start saving, you'll be astonished at how satisfied you will feel watching your money grow.