If I had a dollar for every time I thought about my savings this year, I think they’d look a fair bit healthier in my bank account than they currently do. Granted, a move across the country and a somewhat impulsive handbag purchase didn’t help, saving has never been a strong point unless having a clear, immediate goal in mind: A move abroad, a European summer to fund. With money still a taboo for many in society, it's hard to know how much you should be saving when no one wants to talk about how much they earn and how much of that they are keeping aside for a rainy day – and on that, can we all be more open with our finances? It would be to the betterment of society. For those of us wanting to get better at our saving and finances and constantly wondering "how much money should you save," read on to learn some handy tips on where to start and what the average Australian has in savings.
How much money should you save?
A common rule of thumb is to have at least three months and ideally six months worth of living expenses in your savings at a minimum. This is to ensure you can manage if you were to suddenly be out of a job, if a health problem emerges or a change in personal circumstances occurs. If your monthly living expenses are $2,000, aim to have at least $6,000 in savings at a minimum. If they are higher, around $4,000, aim to have closer to $12,000 at all times. This varies depending on individual circumstances and how you choose to spend on material items.
How do I work out my current living expenses?
To work out what your current living expenses are, look back over bank statements or online banking to see how much money is going out each month from your account. If there is an amount left over, that is what you have saved and the amount outgoing is your living expenses.
On average, how much do Australians have saved?
Depending on the frugality of man, the amount saved per Australian will vary significantly. However, on average, men have more money saved than women on an average of just more than $36,000 compared to $20,0000. This does change again when broken down via age and is inclusive of cash savings, not assets. On average, Australians aged under 24 have $10,568 saved, 24-39 year olds saved $22,532, 40-55 year olds have $34,025 and 56-74 year olds save $40,463.
Men aged between 56-74 have the most savings at an average of $48,644, compared to women at this age having saved $30,162. Even in the youngest age group, men have on average double the amount in savings than women, with $16,349 saved compared to $7,554.
How much should I save per month?
According to Finder data, on average Australians save $717 per month. The average monthly saving for men is $839 and $598 for women. How much money should you save is dependent on many factors, the most pressing of which being your income.
A commonly employed method to work out how much your monthly savings should be is the 50/30/20 rule. This suggests 50 per cent of monthly income should go towards essential living expenses like rent, food and bills, 30 per cent on non-essential spending, like going out for dinner and clothes shopping, and the remaining 20 per cent on savings.
For example, if your monthly income is $3,000, aiming to save $600 per month is realistic and won’t put yourself under unnecessary stress. If your income grows to $5,000 a month, your savings can then increase to $1,000. Of course, this is a rule of thumb and if you are saving for something more pressing, you may like to increase savings and decrease the amount allocated for non-essential spending. It’s all about balance.
How can I increase my savings?
If you are saving for a particular goal, perhaps a holiday or a handbag, there are a few ways you can boost your savings, including:
- Opening a savings account with a competitive interest rate as the better the interest rate on a savings account, the faster savings can grow.
- Reduce unnecessary spending through reviewing your recent transactions and assessing things you can easily cut back on.
- Create a weekly or fortnightly budget to help you control your expenses and reduce emotional buyers. Budgets are also handy to clearly express how much you can save and where you can look to cut spending.
- Look for means to increase your income, which may sound ambitious but can be simpler than initially thought. Consider selling unwanted goods online, renting your spare room or car space or if permissible in your industry you may look at picking up freelance work.
- Compare and switch your services to more affordable and accomodating companies.
At the end of the day, don’t be too hard on yourself and don’t compare your savings to anyone else’s. As we are currently living through a period of inflation and coming off the back of a global pandemic, finances are tough for many and putting unnecessary expectations on yourself can be detrimental in the longterm. Think of it like dieting: If you suddenly deprive yourself of enough money for non-essential spending to the benefit if your savings, at some point it will swing the other way and your savings will take the hit. Everything in moderation and a dash of patience will go a long way. While looking into how much money should you save, our guide to investing may also be worth a read.