£3400 income per month, how much to save?

[gerania]

I know “it depends”, but I’ve recently had a pay rise and it’s difficult to know how much is reasonable to spend and how much to save. I could cut back and spend less, or could also happily spend more of course!

Am 40, single, a homeowner (recently bought - 25 years left on mortgage), public sector pension.

Roughly how much do you think would be reasonable savings?

Well what are your outgoings? If your mortgage and bills are £3k you’ll be about to save less than if they’re £1.5k, for example.

Difficult to answer without some specifics, but in general, I'd save half the pay rise and overpay the mortgage with the other half. Before you get used to having it.

If you can live comfortably off your old level of income, I'd whack any increase on top of that into overpaying your mortgage to reduce the term, as long as you had a savings buffer in the bank of 6months of outgoings.

Okay, very generally, all my bills and essential direct debits (including £700 mortgage) come to £1100.

I’m then currently spending between £8-900 per month on everything else (food, transport, socialising, gifts etc).

What’s tricky is things like holidays, a new car. ‘nice to have’ but not essential. I could save towards spending on these things, but how much? And the rest will go on more long term savings.

What would you want or need to spend the extra money on?

Saving for holidays - you know where you like to go so for example if you go on holidays costing £2400 per year then you need to put £200 per month away to cover the cost - only you can answer that , based on the type of holidays you like / would like to go on. How old is your existing car and what are your plans i.e. do you like a new car every 5 years / 10 years or more often ? What type of car do you want ? Do you drive a BMW or are you happy with a Ford ? Do you usually buy it outright or do you buy it on finance ? If it’s finance you need to save less per month for the initial down payment. As others have said in reality only you can answer these questions as you know what you like. Suggest you set up a spreadsheet showing these extra outgoings, whether it’s annual expenditure or every 3 years and then you can work it out how much you want to set aside for specifics and how much goes into your general savings pot.

Hi OP,

I earn a similar amount to you. The way I tackle it is to have a savings goal for the year rather than per month. I know that some months will be more expensive than others (holidays and Christmas) but can stay on track and generally achieve the goal.

I have separate accounts for "save to spend" (holidays, car, house improvements etc), based on expected annual budget for these things, and for "long-term savings" which are intended never to be spent - unless there is a crisis - until retirement.

Do some sums and start sorting both short and long term savings separately.

Sorry didn't see you had already answered what you would spend it on before posting. For me I would save everything after you have factored in the increase in your normal expenditure from inflation. That would be partly for the car when you need a new one.

Given that you will also have a mortgage into your 60s I would also put part of it into overpaying that, so that if your health doesn't allow you to work that long you have a buffer.

Okay, thanks. I guess I was just wondering what people’s general expectations or gut feeling might be about ‘decent’ savings at my level of income.

Similar take home in CS , I save £1,666.66
per month to make £20k a year which I transfer to ISA when the new year opens - if I need to pull some out for whatever reason then I do but usually prioritise leaving it to build up.

I don’t think there are any, because it entirely depends on your outgoings and lifestyle. It’s up to you how much you save and how much you spend.
In your situation I’d probably overpay my mortgage by £200 a month, put £500 a month into savings and have £700ish left for the ‘nice to haves’.

After bills, food and fun stuff, you have about £1.4K left so I would put £400 of that towards overpaying your mortgage (if your mortgage terms allow for this) and save £1K to get towards the six months worth of expenses that's generally advised.

Similar earnings and outgoings but with kids so I spend a fair amount on them, but I save £850 a month basic and up to £1100 in ‘quiet’ months.

I use the 50/30/20 rule (50% essentials, 30% for spending, 20% for saving)

I would save all of the extra from the pay rise until I had £28,000 in the bank. This is £18000 fora years worth of essential bills and basic food etc plus £10000 for unexpected expenses.

After that I would put all the extra from the pay rise into overpaying the mortgage.

Pay all bills and buy essentials from your pre-payrise wage and whatever is leftover is for spending.

I’d save all the extra money and aim to reduce my mortgage to 15 years .

Save a grand a month into long term savings or investments. How much do you have in savings already?
Save enough for a year’s expenses then start to overpay your mortgage.

There's too many variables to say. But the 50% essentials, 30% spending, 20% savings is probably good to aim for.

Your essential bills are quite low. But £8-900 pm is probably quite a lot for food, lifestyle, gifts etc, so you should consider that you already have some 'spending on nice thjngs' covered.

Also 'savings' can be hard to define. Many people would count any money that isn't spent in a particular month as savings but it could also be said that if its spent on essential costs in a couple of months, eg car insurance, then it's not really savings, but part of your budget.

Sounds like you have at least £1400 left after essentials and most day to day spending. I would aim to save at least £1000 of that for things like car replacement, home improvements, long term savings/investments, mortgage overpayment if you can't beat your mortgage rate with savings, that sort of thing.

The other £400 could be earmarked for holidays and other peaks and troughs in monthly costs, eg boiler service.

We loosely try to do 1/3 housing 1/3 living and 1/3 savings.
We have a spreadsheet for all expenditure each month including things like car insurance that are paid annually but we account for that each month. Then we have standing orders in to savings accounts for anything over this. Nearly all of our annual costs come out of our account in Feb-Apr so our account generally our living account builds up money towards Jan-Feb to account for these bills

I try to keep about 1/3 of my savings in fixed accounts usually for 6-12 month fixes, about half my savings are in the best instant access accounts and the remainder is in savings accounts with the same bank as my current account. Often as a regular saver but they currently have a bonus saver where you get 4% any month you don't make a withdrawal.

I try to keep as much of my money in savings accounts as possible as I'd rather be earning the interest on it for that time even if in 4 months time I'll use it for a holiday. I only have my current account banking app on my phone so if my phone is stolen they don't have access to my savings accounts.

Your £2k a month already seems to cover a decent lifestyle which doesn’t require scrimping which means I’d be looking to put £1k into savings and the extra £400 into another account which I save and use for car or holidays etc.

agree with overpaying mortgage if and where you can and I’d do that from the £400

Some people use the 50-30-20 rule- 50% needs, 30% wants, 20% savings.

Obviously it's not always easy to distinguish between needs and wants (eg food is a need but salted dark chocolate almonds are a want).

Bills and basic food, transport, basic clothing etc- no more than 50% so £1700
Wants, luxury foods, socialising, gifts, clothes you don't actually need etc- no more than 30% ie £1020
Savings 20%- £680

What is your mortgage rate?

On that salary I would:

• pay bills/essentials
• max out ISA (£20k/year)
• rest is split 50/50 free cash savings for repairs etc vs "nice to haves" eg holidays