How much should I really put aside each month?

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CMC Invest

29 September 2022

Key points

  • Even putting aside a little bit of cash to invest or save can allow you to generate returns towards your financial goals.
  • Understanding your budget and determining what your financial goals are can serve as good motivators for establishing a savings or investing plan.
  • You can opt to put cash into savings accounts, but these will often offer returns below the rate of inflation. Investments like stocks or bonds offer the chance of greater returns but carry additional risk.

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Important: This article is for general guidance purposes only and should not be considered investment advice. If you are unsure about the suitability of an investment, please seek out advice. When you invest, your capital is at risk. Tax treatment will depend on your individual circumstances and could potentially change in the future.

Most financial experts recommend having easy access to three-to-six months of salary so that you’re covered if you lose your job or something happens that you hadn’t planned for. We’re also told, however, to invest some of our money so that we can retire comfortably and meet other financial goals.

So, how much do people put aside in general and how should you decide the amount of money to put to work?

How much of my salary should I put aside each month?

As a rule of thumb, the recommendation is to aim to put away 20% of your after-tax income every month. So, if you make £2,500 per month, that’s a target of £500. If you earn £5,000, then you could aim for £1,000 a month.

We’ll talk about how you might get realistic about this figure in a bit.

How much does the average person actually save a month in the UK?

The average monthly household savings in the UK is £450 per month, according to data published by NimbleFins. This is skewed, however, by households in the top fifth of earners.

How much do I need to save to retire comfortably?

In theory, you should have saved up to 25 times your annual expenses to become financially independent by retirement age, according to the experts at Money Under 30. The idea is that you can then withdraw 4% of your savings/investments annually, which should last you another 30 years – adjusting for inflation.

For most of us – and remember, this is the best-case scenario – that means saving 10% to 30% of our salary, depending on age and other savings. The actual sum needed depends on how much you wish to spend in retirement and how long you live.

An online retirement calculator can help you figure out what you need. But, keep in mind, that the higher the return on your investments, the less you’ll need to actually save each month/year.

I’m still not sure saving much is realistic for me…

If the 25-time rule feels like a pipe dream and you don’t have much spare cash left over each month, don’t worry and start with what you can afford.

Even a small amount adds up over time. For example, £50 per month earning 6% interest (less than long-term stock market return averages) could mushroom into more than £22,000 over 20 years.

The sum you save can then get allocated to your various goals. Perhaps you want to focus on your short-term aims first, like having a nest egg for emergencies. Or, maybe building a pension is more important for you.

Now, let’s get realistic about what that monthly amount might be…

Five steps to your budget plan…

  1. Write down what you make after taxes.

  2. Write down all your essential outgoings per month – for example, rent/mortgage, insurance, food, utilities and debt repayment.

  3. Consider non-essential expenses, like your gym membership or multiple streaming subscriptions – do you really use all of them? Are there cheaper options or deals you can shop around for?

  4. Write down what you want to spend on things like concert tickets, cinema trips, dining out or holidays.

  5. Look at how much is left over. If it’s nothing or only a little, see what else you could cut back on. Can you swap to a cheaper home insurance plan, for example, or try out a cheaper supermarket?

Now, you know what you’re working with.

Set some goals

Many people find it easier when they know what they’re saving for. With this in mind, making a list of your financial goals can be a great motivator.

Some investing and savings goals might be:

  • Building up the equivalent of three-to-six months’ income in a savings account to cover emergencies.

  • Putting money aside for a holiday. Costs here will vary drastically, depending on whether you’re talking five-star or coastal camping.

  • A deposit on a house or flat. Calculate what you’ll need for the kind of property you have your eye on. According to Bankrate, the financial uncertainty caused by the pandemic means more UK lenders are asking homebuyers to put down 15% of the purchase price.

  • Buying a foreign property, where you might need the full purchase price in cash (rather than a loan).

  • Paying off your mortgage.

  • A decent pension.

How can I make the most of my savings?

There are several ways to help your savings grow, with each option carrying a different level of reward and risk:

Savings account or fixed-term deposit. These are your typical high-street offerings, and usually safe and low-risk options. However, because of this, they offer substantially less profit potential than, for example, investing in stocks, and the interest rates on offer will often be below the rate of inflation.

Investing in the stock market. This carries more risk than a savings account, but the potential rewards are also much greater. If you’re new to investing, investing in stocks might feel a little daunting at first – but it doesn’t have to be.

Here are some potential options for beginners to consider:

Stock index exchange-traded funds (ETFs) – The name might sound technical, but hold your horses – the idea is actually pretty simple. These are funds that track major stock indexes – like the S&P 500 in the US and the UK’s FTSE 100 – which feature the big business names (or ‘blue chip’ companies) that tend to make money. The long-term yearly average performance of these indices is 10% and 8%, respectively. Saying that, past performance is not indicative of future results, so you need to bear that in mind.

Dividend funds or stocks – Looking for a regular income flow? Dividend stocks pay out cash to shareholders, typically monthly or quarterly. They provide a regular cash flow – i.e. the dividends – that can be reinvested in the stock to compound returns.

Growth stocks – These are just what the name implies – stocks that are steadily growing their earnings and revenues. As the business grows, so too – typically – will the stock price move higher.

Value stocks – Alternatively, you could invest in stocks that are trading at an attractive price (below what they’re probably really worth), relative to the profit the company makes or to their net assets.


Like the idea of playing the stock market, but still feeling your way?

Bonds could be the answer: offering a middle ground between a savings account and investing in the stock market. A bond is a loan to a company or government. You lend them money, and they pay you a set amount each year. When the bond matures, they pay back the original amount they borrowed.

You can receive higher rates than a savings account but less than the stock market. That said, the risk of loss is also generally lower than stocks.

Because rates change between bonds, it’s worth doing your homework before you commit.

Capital at risk.