How much of my paycheck should I be saving?

08 March 2023

How much of my paycheck should I be saving?  

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. 

We all know that saving money has a direct effect on how secure we feel. 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, for example, you can probably save a lot more. But if 20% seems to be impossible at the moment, saving something is still better than nothing.


1. Look closely at your goals 

Having a look at your savings goals is a great place to start. You’ll need to save money for: 
  • Short-term goals (expenses with less than a year) 
These savings can be for your vacations, an emergency fund in case something goes wrong, unexpected appliance replacements, for example.  
  • Medium-term goals (within less than a decade) 
This money can be for a new car, a new deposit, or a home renovation.  
  • Long-term goals (10 years or more away) 

Lastly, the third category is mostly for retirement, but also other goals you may have, like buying a second home.


2. Put some deadlines on it 

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 timeframe by the amount of money you need for each goal. For instance, if you need to build $15,000 to replace your kitchen in two years, you'll need to put aside $625 each month.

Write everything down in a table, like this: 

Once you’ve run this calculation with every goal on your list, you may find that you can’t save enough, or need to keep more than your income to fulfil all your ‘wants’. So, what can you do?  

The beauty about this model – is once you have achieved your short term goals you can simply flick your savings straight into your long term goals. 


3.Reassess 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.  


Here are the following steps: 
  • Figure out exactly what you could save every month, and how that lines up with your short and medium-term savings goals. You may need to reconstruct your goals and amounts to fit with the realities of your life. 

  • Keep in mind the one non-negotiable thing: your emergency fund. Regardless of what you’re spending on, make sure you always try to have at least three months’ worth of bills and expenses on hand for the unexpected. Then, check in on your emergency fund yearly, to accommodate rises in the cost of living and new financial obligations.  

  • Don’t overlook the more distant future. 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. 


4. Overcome the common barriers to money-saving 

There are many common barriers that can prevent people from saving money, but with practical steps, you can try and overcome these obstacles.


Here are some key barriers to watch out for: 
  • Lack of budget: As we’ve seen, the first step to saving money is to create a clear and, most importantly, realistic budget. Without it, it can be easy to overspend and have little left over for savings.  
  • High expenses: If your expenses are high, it can be difficult to save money. Of course, not every expense can be reduced, but you’ll be surprised at the difference that a few key cuts here and there can make over time. Consider switching providers, cooking meals at home instead of eating out, or cancelling subscriptions you don’t use. You can also look for ways to earn extra income, like taking on a part-time job (if you have time!) or selling items you no longer need. 

  • Debt: Another major barrier to saving money is having high-interest debt, such a credit card. That’s why it’s important to pay it off as soon as possible. Many people use the ‘debt snowball method’: essentially, you pay off your smallest debt first and then apply that payment to the next smallest debt. This strategy can help you build momentum and pay off your debts more quickly. 

  • Lack of discipline: Yes, saving money requires discipline. One way to streamline your efforts is to automate your savings. If you set up automatic transfers from your main bank account to your savings account each month, you won’t have to think about saving money: it will happen automatically.  

  • Impulse buying: Do you often find yourself buying things out of impulse? Treating yourself every now and then is not a bad thing per se, but it becomes a problem if it consistently derails tour savings goals. To avoid the temptation, create a shopping list before you head to the supermarket or go shopping – and of course, stick to it. Another good idea is to give yourself a waiting period before making a purchase: if you still want the item after a few days, you can consider buying it.


The bottom line 

Saving money is a marathon, not a sprint. By creating a budget, cutting back on expenses, paying off debt, staying disciplined, and avoiding impulse buying, you can overcome the most common barriers achieve your financial goals. Remember, saving money is a marathon, not a sprint. Make patience and persistence your friends. 


Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance. 

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