How much should I be saving?

Saving regularly is a habit that needs to be cultivated and as with most things in life, starting sooner rather than later often gives investors a huge advantage.

When it comes to the topic of spending and saving, it seems like there are countless ways of doing it.

How much should I be saving

A quick internet search throws up guidelines around how much of your income you can spend and how much you should save. Some articles focus on a percentage rule – with the most common being the 50/30/20 breakdown where 50% goes towards essential living expenses such as rent and utility bills, 30% towards your everyday expenses such as entertainment, eating out and clothing, and then allocating the remainder 20% to your savings. And then there are other guidelines which adjust those percentages according to your age – suggesting that you should save between 25-35% of your income if you begin your savings journey in your early 40s.

But many of these articles gloss over one very important point – and that is, knowing how much to save is important but how regularly you save is equally so, if not more. Learning to save and doing it regularly is not something that everyone does naturally, especially if you’ve just started working and you feel like there isn’t much left to save after all the essentials have been accounted for.

But saving regularly is a habit that needs to be cultivated and as with most things in life, starting sooner rather than later often gives you a huge advantage, assuming this is a habit that you stick to through your working life.

If you’re not yet convinced, the illustration below might perhaps change your mind and push you a little closer to building a habit that could set you up for life.

power of reg 

The chart shows that investing $10,000 in 1980 in a broadly diversified fund and leaving it untouched for the next 40 years would have delivered approximately $800,000 at the end of the four decades, thanks to the tried and true investment principle of staying the course.

However, the chart also shows that regularly contributing $250 or $500 every month to that initial $10,000 would have resulted in a portfolio balance of $2.7 million or $4.5 million respectively. While the chart does not take into account the cost of fees and assumes that all dividends are reinvested, it really paints a picture of how regular contributions could make a significant difference to your overall goals.

If you’ve just started on your savings journey, putting in place a set-and-forget system such as an automatic transfer to your savings or investment account each payday could be useful. That way, you don’t have to make any decisions about saving more or spending more each month. For those wanting to take less of a hit to your take home pay, consider contributing your pre-tax pay to your super fund (noting that you won’t be able to draw on those savings until you retire, aside from exceptional circumstances).

Finally, it is important to note that saving is different to investing, particularly if you have a short-term savings goal. If you are saving for a goal that has a time horizon of less than five years, be highly aware of the risks that you are taking on if you decide to invest those savings into the financial markets. But if you have a goal of more than five years, then consider the potential benefits that regular investing in a broadly diversified portfolio could deliver, because time is on your side.

Call us today on 03 9553 0271 if you’d like to start your savings or investment journey.

Source: Vanguard

Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

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Authorised Representative 298494
Interprac Financial Planning Pty Ltd 

Darryl Jopling

Senior Adviser

I have worked in the financial services industry since 1982 and as a Financial Adviser since 1999.

I have worked for large Financial Planning businesses, Membership based organisations and looked after the financial planning needs of clients within an Accounting Practice before starting my own business.

I am married, have 4 older children and a grandson and I am keen golfer with mixed results like many .

I have been through many of the strategies I talk with clients about myself and with my family.

I have been through the journey of seeing my parents move into Aged care and negotiated the difficulties and pitfalls of understanding the system for them and this gives me an excellent insight into what is required to assist families at this difficult time.

In a previous roll I used to run retirement seminars looking at Centrelink and Retirement Incomes and how to make these work for you. I have helped many of my clients with Aged Care advice when their parents needed to move into Nursing Homes. For many clients I assist them with superannuation, building wealth and protecting their loved ones with insurance.

I am supported by his, Licensee, Interprac Financial Planning’s in-house resources and ongoing technical, systems and training.

I am committed to understanding your needs and identifying strategies and products to help you achieve your goals.

My guiding principle as an Adviser is to design plans which help to provide my clients with clarity of purpose and the opportunity to build a solid financial foundation.
I will take the time to listen, explain things clearly and keep you informed throughout the advice process.

My experience is complemented by professional qualifications including:

  • Certified Financial PlannerTM Professional
  • Diploma of Financial Planning

At Choice Financial Advice we work with you along the way on life’s journey.

Whether you are getting married, starting a family, embarking on the trip of a lifetime, planning to enjoy your years after work or assisting elderly parents with Aged Care and Nursing Home placements, we can help.