What is a reasonable % of income to save

Mtrott71565

I have heard the rule of 50% towards necessities, 30% discretionary spending and 20% of your income saved every month. Do the people of this forum thing this is reasonable given current inflation rates? If so, do you use any particular budgeting tools to allow you to do this? Also, this may seem a silly question, but does this 20%!figure include your mortgage payments as these savings are effectively building your assets? Thanks In advance 

blue.peter

I'd say that what's a reasonable amount to save is what you can comfortably afford. It varies from one person to another and depends entirely on their own circumstances.

At one extreme you've got someone with multiple dependants and an inadequate income. They can't afford the necessities of life, let alone to save money. At the other extreme is a very well paid hypothetical senior executive with no dependants and a fairly modest lifestyle. They might be able to save 70% of their income. An older person who's paid off their mortgage will probably be able to save a lot more than a young person who's only just taken out the biggest mortgage that they could get. And so on.

There's no sensible hard and fast rule that suits everyone.

As for tools, I use AceMoney. As I receive my income, I use it to plan ahead for the next month (i.e., until I'm next paid). I look at all my commitments for the month ahead, including paying off my credit card bills in full, hold a bit back for ad hoc cash spending, and sweep anything that looks like being surplus into my savings account.

grumbler

Mtrott71565 said:

I have heard the rule of 50% towards necessities

Very strange rule... If the income is big it will be difficult to spend half of it on 'necessities'.

IMO, it's far easier to think in terms of Discretionary income

theoretica

I looked at when I would want to spend the money - not saving in the abstract, but saving because I would want to spend it later more than I want to spend it now.  In retirement - and I plan to have the freedom to retire early if working becomes a drag - I will want to spend money and not be earning it.  So every year of my working life needs to pay for considerably more than a year of living. The state pension will help, but not with early retirement.

How you consider your mortgage payments probably depends on how you think about your home - an asset you will release equity from by downsizing, or financial products?  Or an asset you will try to preserve untouched to leave to heirs?  Or a place to live and the mortgage a cost you won't have in retirement.

El_Torro

Mtrott71565 said:

Also, this may seem a silly question, but does this 20%!figure include your mortgage payments as these savings are effectively building your assets? Thanks In advance 

On the face of it I would say no. However if you're making a mortgage overpayment you could argue that this counts as an investment, or paying into your savings. 

As others have said though the percentages are relatively meaningless. Currently I am saving / investing a big chunk of my income. I have gone through extended periods in the past where I was spending more than I was earning. A lot depends on your circumstances and where you are in life, and where you expect to be in the future. 

Rob5342

There's little point in worrying about percentages as everyones situation is different. You really need to look at what you want to achieve and whether you are saving enough for that. It might be that you can save more by cutting dowm on certain things to achieve what you want, alternatively it simply might not be possible that you can save that much at the moment.

I just use a spreadsheet to work out all my monthly income and outgoings, and use the pots feature of Monzo to manage it as I go through the month.

MEM62

Mtrott71565 said:

I have heard the rule of 50% towards necessities, 30% discretionary spending and 20% of your income saved every month. 

No such rule.  It is down to individual circumstances and personal choice.  It is highly unlikely that someone on minimum wage would be able to save 20% of their income.  Equally, those with high incomes may not need to spend anywhere near 50% of their income on necessities.  It is also probably the case that a lot of people in the middle of those two extremes do not save enough - particularly for retirement.      

400ixl

Define savings? Are pension contributions defined as savings in this scenario.

It will be so different across the demographics there can't be a standard rule. This could be the idealised minimum target to achieve to have a healthy lifestyle I suppose.

NoMore

That 'rule' makes zero sense, you can't define your necessities as 50% of your income, your necessities are what they are, for some that  might be 80% of their income for others it could be 20% or any other percentage.

Mtrott71565

NoMore said:

That 'rule' makes zero sense, you can't define your necessities as 50% of your income, your necessities are what they are, for some that  might be 80% of their income for others it could be 20% or any other percentage.

I’m not saying I necessarily agree with it. It was a model proposed and popularised in the US by Elizabeth Warren. Of course in accept it’s extremely arbitrary. I guess I was just wanting to know how much money other people manage to save so I could gauge if I was budgeting properly but as others have pointed out, everyone’s circumstances are different.

yksi

Saving... for what?
If you have debts like carrying interest-bearing credit card balances, the amount you save each month should be £0.
If you hope to retire early, the amount you should save is every single penny you can, and then some more.
Hope this helps.