How much should you be saving?

[Deactivated] on 05/01/2017 - 10:58
Last edited 05/01/2017 - 10:59

Hi all,

A simple question, how much should we save?
This question comes from what I heard about the 50-30-20. 50% for regular financial commitments like rent/mortgage, bills, food, basic clothing, etc. While 30% is for entertainment, restaurants, luxury clothing, holiday, etc. And remaining 20% is for saving, including superannuation.

What do you think about this? How much do you save each year?

For me personally as a family we save about 10-15% annually, excluding super. With super it is about 15-20%. We spend mostly on mortgage, about 45%, our total financial commitments is close to 70%.

Financial

Comments

  • Skramit on 05/01/2017 - 11:03

    I think 20% is a reasonable goal but probably a bit ambitious for most people - given how easy it is to spend these days :)

    I'd be happy with 20% per year in a "non big holiday" year. And 10% if I had a big holiday…

    But that's not counting my super!

    • [Deactivated] on 05/01/2017 - 13:45

      That's very good I think, can I ask what age category are you in, and in what life phases are you at (single, married, kids, etc)

      Thanks

  • Mumbles on 05/01/2017 - 11:35

    We spend mostly on mortgage, about 45%

    That puts you in the category of mortgage stress.

    Advice would depend on how stable your job is and how many years to pay off the mortgage. For people with long home loans I'd recommend first thing is to save like crazy, enough to cover 3-6 months of being out of work + mortgage repayments.

    • Diji1 on 05/01/2017 - 11:49

      That puts you in the category of mortgage stress

      Congratulations, you're part of a meaningless category someone invented!

    • [Deactivated] on 05/01/2017 - 13:49

      I think we are in that category, but it can be unrealistic to save as much as we can, because with our commitments, as much as we can save is only 30%. That's without nice clothes, dining out, buying stuff on ozbargain….

      Having said that, depending on what phases of life, it could be easier or harder to save money. For example, newly weds, easier, no kids. New kids, hard,and will get harder as kids get older. Then when kids out of the house, plus mortgage paid off, very easy.

  • Zaenille on 05/01/2017 - 12:32

    Depends what your goal is. How early do you want to retire? What are your current responsibilities? (Loans, children, debt, mortgage)

    The blanket answer is "All that is left"

    If you had a specific goal like retire at 50, then you need to save up 10 times your living costs at the minimum to survive until 60 before super kicks in. Divide that by the number of years you have left before 50, and there's your answer.

    It gets more complicated with where you're keeping the money, inflation, and expected % returns (if invested), but that's the gist.

  • gidxg03 on 05/01/2017 - 16:22

    This post inspired me to have a look at our spending in 2016 (we keep a detailed tracking spreadsheet) and I can see our breakdown was (net) 57/36/7 plus our normal super payments. Have just put together a budget for 2017 achieving (on paper) the 50/40/10 again plus super payments. Am looking to use the 10% savings to put straight into our mortgage which will, according to the online calculators, reduce our Interest by $76,503.23 and reduce the loan term by 12 to 13 years - if we can stick to it!

    • [Deactivated] on 05/01/2017 - 16:59

      Good luck mate, yup I think putting it straight to the mortgage is the best way.
      Also if you make your own super contributions, better to part with your money in the beginning, imho…

      About your reduction of 57 to 50, I wonder how do you do that?
      Mine 70% consists of 45% mortgage, childcare, bills (water, gas, electricity, council, internet, strata), phone, insurances (car, health, home), car rego and maintenance.

      I think of all the above, I can only see phone bills as reducible (by resisting temptation to upgrade and go prepaid).
      Insurances, while optional, it's scary to live without them.
      car maintenance, I suppose I can try some local mechanics to save a few hundreds.
      So I wonder how do you reduce the 7%?

      Just about home loan, I read one article that says, on average, most homes may never be paid off. By that it is saying that before the owner actually paying it off, they would usually have sold it out and move someplace else. Also the research also says that average loan term usually last only 5 years, before we refinance the loan (same house or new), with a new bank or same bank.
      I guess it's best just to aim to save a certain amount, and take that loan term reduction as a grain of salt.

      • gidxg03 on 06/01/2017 - 15:02

        To be honest we were not as far off 50/30/20 as I thought. Some small re-adjustments to how we were categorizing made the difference. Holidays and Xmas in our budget were previously tagged as bills rather than entertainment so when I moved those around we pretty much came into line (hence the 7% reduction). But our entertainment came up higher and we are now 50/40/10 (net) + superannuation payments. We are very fortunate that our mortgage is only 13% of income.

        I suppose once you settle on your total bill amount and set this in your budget the task is then to shop around and try to reduce things like electricity, gas, insurance, mobile plans etc.

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