How much of my paycheck should I be saving?

02 December 2020

As much as the 50-30-20 savings rule might seem simple, life is more complicated than that. Learn some tips to manage your savings, according to your own lifestyle. 

All of us know that saving our money has a direct effect on how financially secure we are; but how much can we really put aside? Many sources advise saving 20%. But quick reality check shows that it is not a one-size-fits-all situation. If you are a high earner, you can save a lot more. But if 20% seems to be impossible at the moment, saving something is always better than nothing.


Determining your magic percentage

To start with, you should have a look at your goals. There will be three main types:

  1. Short-term goals (expenses within less than a year)

  2. Middle-term goals (within less than a decade)

  3. Long-term goals (10 years or more away)

The first category is for your vacations, an emergency fund in case something goes wrong, and unexpected appliance replacements; second is for a new car, a home deposit, renovations; the last one retirement and sometimes a second home. 

After you define your goals, you need to create a list with the deadlines, check how much you need to reach in your timeframe, then divide that time frame by the amount of money you need for each goal.

For example, you need to build $15 000 to replace your kitchen in two years. You'll need to put aside $625 each month.

saving goals table


Run this calculation with every goal on your list. By the time you've done, you probably realise you can't save enough (sometimes you can realise that you need to keep more than your income to fulfil all your wants). 


Reassessing your goals (bar one)

Most of us have eyes bigger than our stomach. Yes, a new kitchen would be nice, so would a car, but is it worth more than missing an overseas trip for three consecutive years? By setting deadlines and cost estimates for your goals, you’ll see where you can downsize, move, or change your goals against the realities of your income. 

From here, you can figure out exactly what you could save every month, and how that lines up with your short and medium-term savings goals. 

While you’re reconstructing these goals and amounts to fit with the realities of your life, you should keep in mind the one non-negotiable thing—the emergency section of your short term savings pool. Regardless of what you’re spending on, you should always try to have at least three months worth of bills and expenses on hand for if anything was to happen. 

The good thing about the emergency section is that once you’ve hit your goal, that’s a rainy day fund that sits around waiting for you. However, it’s something you should be checking in on, yearly to accommodate rises in the cost of living or new financial obligations. 

As much as it’s saving for a time so far in the future that many can find it alien, retirement savings are the best determinate of wellbeing in later life. Many financial professionals suggest siphoning between 10% and 15% of your income towards it, which for many New Zealanders may sound unattainable. Still, that rate can be affected by numerous circumstances, such as how much you earn and when you begin saving. 

The best way to maintain long term retirement for New Zealand is bettering your KiwiSaver investment — 3% will replace less than half of your income in retirement, making that 6% is a foolproof means to keep your same lifestyle after you finish your career.  


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