Whether you earn a salary or run your own business, you need to look over your finances from time to time to make sure what you earn meets your needs and lets you put aside some money for a rainy day. If you find yourself wondering how much you should save up, you may not find an easy answer. However, you can approach the question from a couple of different angles.
You could consider your long-term financial aspirations, such as buying a home, investing in property, or even travelling abroad, and see how much you’d need to make them come true. Alternatively, you could pay your bills, reduce casual expenses, and leave the rest of your income intact as savings.
How can I put more of my monthly income into savings?
Remember that the nature and source of your income may differ greatly from that of family members or friends, and you'll need a unique financial approach. In other words, a savings strategy that works for one household may not be the best option for another household.
If you receive a fixed monthly income, you may be able to budget your expenses effectively, making it easier to increase your savings. For instance, let’s say you are earning $5,000 a month, but you need to pay $1,000 towards utilities and another $1,000 towards your household expenses. However, you are also paying $1,000 in credit card bills each month. At a minimum, you may be able to save $2,000, but if you examine your credit card bill, you may spot expenses you can avoid and thus boost your savings.
Alternatively, you could think of different ways to save from your pre-tax income, such as salary sacrificing either mortgage payments or personal super contributions, which would help you save on taxes as well. Consider checking with your employer about the expenses you can pay through a salary sacrifice arrangement, and see if that helps you save more overall.
You could also set up a standing instruction to transfer the amount you can safely save to your savings account on the day you receive your salary. Doing so reduces the chances of eating into your savings while also discouraging you from making unnecessary purchases.
How does having a savings account help me save more?
Depositing a portion of your income into your savings account is one way of separating the amount you want to save from the amount you can spend either on necessities or indulgences. You can also grow your savings when the bank pays interest on the amount in the account.
However, you should try not to withdraw money from your savings account where possible so that the funds are available in an emergency. Adding deposits to your savings rather than making withdrawals can, over time, ensure that you have a sizeable pile of cash that can come in handy if you want to invest in property or holiday abroad.
Your choice of savings account is also important, as you could potentially earn more interest in exchange for keeping withdrawals to a minimum or ensuring the account balance is above a minimum amount. You could periodically check for bonus interest rate promotions which can provide a rapid boost to your savings, even if for a short while.
Some banks may also offer you digital tools that help you set financial goals and track and adjust your expenses accordingly. Other institutions may assist with financial consultations that can help you balance your expenses and savings and make the most of your income.