How Much Should I Be Saving Every Month?
Our Guest Author, Joshua Shepherd, a UK Financial Adviser, answers the crucial question: what percentage of your income should you save?
"Wondering if you’re saving enough or maybe too much? Today, we’ll break down what percentage of your income you should be saving based on your goals."
This is the question I get asked more than any other. In a world of rising costs and endless spending temptations, it's easy to feel like you're falling behind, or to have no idea what a "good" amount to save even looks like.
The truth is, there's no single magic number that works for everyone. The right amount for you depends on your age, your income, your goals, and your lifestyle. However, there are powerful rules of thumb and frameworks that can give you clarity and confidence. As a financial adviser with over 20 years of experience, my goal today is to give you that clarity. Let's break it down.
What You Will Learn in This Guide ⤵
A Professional Rule of Thumb: How much of your salary you should aim to save for your pension based on your age.
The 50/30/20 Budgeting Rule: A breakdown of this popular framework and how you can apply it to your UK finances.
Emergency Funds vs. Investments: The crucial difference between the two, how much you should allocate to each, and which one to prioritise first.
Lifestyle vs. Goal-Based Saving: How to think about your savings with clear intent and purpose to build long-term wealth.
How much should someone save for their future?
This is the big picture question. While the classic answer is "as much as you can," a more structured approach is the "half your age" rule for pensions.
The Rule: Take the age you started saving for your pension and halve it. This gives you the percentage of your pre-tax salary you should aim to contribute to your pension (including your employer's contribution and tax relief) every year for the rest of your working life.
Example: If you start saving at age 30, you should aim for a total pension contribution of 15% of your salary.
If you start at age 40, that figure becomes 20%.
This simple rule powerfully demonstrates the cost of delay. The later you start, the heavier the lift required.
However, this only covers your pension. For your overall financial health, a good target for your total savings and investments (including your pension, ISAs, and other savings) is at least 20% of your take-home pay. We’ll look at how to allocate that in a moment.
What do you think about budgeting rules? — Is 50/30/20 a good model?
I'm a big fan of the 50/30/20 rule as a starting point. It’s not a rigid law, but a fantastic framework for bringing awareness and balance to your spending. It works by dividing your after-tax income into three categories:
50% on Needs: This covers your essential, non-negotiable expenses. Think rent or mortgage, utility bills, council tax, essential groceries, transport to work, and minimum debt repayments.
30% on Wants: This is your lifestyle spending. It includes everything from your Netflix subscription and morning coffee to holidays, dining out, and hobbies. It’s the "fun" money that makes budgeting sustainable.
20% on Savings & Financial Goals: This is the most important category for your future. It includes building your emergency fund, making extra debt repayments, and investing for the long term in your pension and ISAs.
My Verdict on the 50/30/20 Rule: It's an excellent diagnostic tool. Track your spending for a month and categorise it. If you find you're spending 70% on "Needs," you know you have a core spending issue to address. If you're spending 50% on "Wants," you know your discretionary spending is preventing you from saving for your future.
The key is to not be afraid to adapt it. If you live in London, your "Needs" might be closer to 60%. That’s okay, but it means you have to reduce your "Wants" to still protect that crucial 20% for savings. If you have ambitious goals like early retirement, you might aim for a 50/20/30 split, cutting back on wants to supercharge your savings.
How much should I put toward emergency funds and investment?
This is a question of priority, and the order is non-negotiable for building a secure financial foundation. You must separate these two goals.
1. The Emergency Fund (Your First Priority)
What it is: Your financial safety net. A pot of easily accessible cash to cover unexpected life events, like a job loss, a boiler breakdown, or an urgent repair.
How much: Aim for 3 to 6 months' worth of your essential living expenses. If your core "Needs" are £1,500 a month, your target is £4,500 to £9,000.
Where to keep it: In a high-interest, easy-access savings account or Cash ISA. The goal here is safety and accessibility, not high growth.
The Rule: You should focus on building this emergency fund before you start any significant long-term investing. It's the buffer that prevents you from having to sell your investments at the worst possible time to cover a crisis.
2. Investing for the Long Term
What it is: This is the money you are putting to work to grow your wealth for the future (5+ years away). This includes your pension contributions and any money you put into a Stocks & Shares ISA.
How much: This is where the majority of your 20% "Savings" allocation should go after your emergency fund is healthy. The exact amount depends on your goals, but this is the engine of your financial freedom.
So, within your 20% savings allocation, the journey is:
Aggressively build your 3-6 month emergency fund.
Once that's established, redirect the full 20% towards your long-term investments (pensions, ISAs) and paying off high-interest debt.
What’s the difference between lifestyle saving and goal-based saving?
This is a great question that gets to the heart of intentional financial planning.
Lifestyle Saving (or General Saving): This is often saving without a specific purpose. It's the habit of putting money aside each month because you know you "should." While a good habit, this money often gets absorbed by medium-term wants – a new car, a nicer holiday, home renovations. It improves your current or near-future lifestyle but might not be directly building towards long-term freedom. Your emergency fund starts here, but this category also covers things like a "holiday pot" or a "new car pot."
Goal-Based Saving (or Investing): This is saving with a specific, long-term, wealth-building objective. It's not just saving; it's investing with a purpose. This money has a clear job to do.
The Ultimate Goal-Based Saving: Your pension. Its sole purpose is to fund your retirement.
Other Key Goals: Saving for a house deposit in a Lifetime ISA, or building a tax-free investment pot in a Stocks & Shares ISA to provide an income in the future.
The key difference is intent and timeframe. Lifestyle saving is often for the short-to-medium term. Goal-based saving is a long-term strategy for building the financial assets that will one day give you freedom. A healthy financial plan needs both, but you must ensure your lifestyle saving doesn't completely cannibalise your crucial goal-based saving.
Know Where You Stand: Take the Plouta Financial Wellness Survey
Taking our Financial Wellness Survey is a great first step. It will help you reflect on your habits and identify the key areas to focus on in your journey towards financial freedom.
Key Takeaways
Aim for 20%: A great starting point for your overall financial health is to save 20% of your take-home pay towards your financial goals (including your emergency fund, debt repayment, and investments).
Use the "Half Your Age" Rule for Pensions: To get a more specific target for your retirement, take the age you started saving for a pension and halve it. This is the percentage of your pre-tax salary you should aim to contribute for the rest of your career.
The 50/30/20 Rule is a Framework, Not a Law: Use the 50% (Needs), 30% (Wants), 20% (Savings) rule as a powerful tool to analyse your spending, but don't be afraid to adapt it to your own circumstances and goals.
Emergency Fund First, Always: Before you start any significant long-term investing, your absolute priority should be to build an emergency fund of 3-6 months' worth of essential living expenses in an easy-access cash account.
Save with a Purpose: Differentiate between general "lifestyle saving" (for holidays, cars) and long-term "goal-based saving" (for retirement, financial independence). Ensure the latter is always being prioritised.
Conclusion: From Rules of Thumb to a Plan for You
As we've seen, rules like "half your age" for pensions and the 50/30/20 budget are excellent tools for getting your bearings. They give you a benchmark to aim for and help you understand where your money is going.
But the ultimate goal of financial planning isn't just to follow a rule; it's to build a life of security and freedom that is uniquely yours. Your goals, your income, and your circumstances are different from anyone else's, and your financial plan should reflect that.
If you're ready to move from general guidelines to a specific strategy tailored to your life, I'm here to help.
Ready to create your personal roadmap to financial freedom? Book a complimentary, no-obligation call with Joshua, to discuss your financial goals and create a plan that works for you.
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Disclaimer: This article provides general information and is for informational and educational purposes only. It does not constitute financial advice. The suitability of any savings rate or financial product depends on your individual circumstances and goals. The value of investments can go down as well as up. Always seek professional, regulated financial advice tailored to your specific situation.
