How much should I spend and how much should I save?
How much of your income you should spend and how much of your income you should save depends on your personal circumstances and your goals.
Some people will choose to live more in the moment and spend more. Others will want to plan for the future and save more. The choice is yours, but here are some tips to guide you.
The simplest approach – the 50/30/20 rule.
The 50/30/20 rule is a popular framework for budgeting and is quick and easy to action. It suggests dividing your income into three main categories:
- Needs (about 50% of your income): Allocate half of your income to essential expenses, such as rent or mortgage payments, utilities, groceries, transportation, insurance premiums and healthcare.
- Wants (about 30% of your income): Allocate 30% of your income for discretionary spending. This includes non-essential expenses like dining out, entertainment, hobbies, and travel. Be mindful of overspending in this area. Enjoy life, but within reason.
- Savings and debt repayment (about 20% of your income): Allocate 20% of your income to savings and debt reduction. Build an emergency fund, contribute to retirement accounts, and pay down high-interest debts (credit cards, personal loans). Consider automating your savings to make it easier.
A more complex approach – review everything and budget from zero.
This approach requires you to analyse every dollar you spend and build a personal budget from scratch. With this approach, don’t assume any of your spending is required. Consider and challenge everything!
To save some time and make it a little easier, you might want to use the Beyond Bank + app to review your spending. Alternatively, you could download all of your transactions from internet banking or gather your paper statements and load them into Excel.
Review every transaction and consider if you need to or want to keep spending it. If you do, build it into your budget. If you don’t, don’t include it in your budget.
A middle-of-the-road approach – using goals.
This approach is based on the quick and simple 50/30/20 rule, but you modify it to accommodate any specific goals or objectives you have. For example, you might start with 50/30/20 and modify it to include things like:
- Building an emergency fund. If you don’t have an emergency fund, or you’d like to build on the one you have, consider prioritising it over some of your discretionary spending. After you’ve built up the balance of your emergency fund, you might then increase your discretionary spending, confident in the knowledge that you have your emergency savings to fall back on in times of need.
- Debt reduction. To save some time and make it a little easier, you might want to use the Beyond Bank + app to review your spending. Alternatively, you could download all of your transactions from internet banking or gather your paper statements and load them into Excel.
- Long-term goals. If you're saving for specific goals (e.g., a home, education, retirement), you might consider putting aside more for these goals and spending less on discretionary items. You’ll achieve your goal sooner and you may then be able to increase your discretionary spending again.
Some other tactics that might help.
Here are some tactics that might help you build a savings habit.
- Open a separate account for savings and keep them out of sight. Accounts like the Beyond Bank monESaver and the Beyond Bank Purple Bonus Saver pay competitive interest rates on your savings.
- Automate your savings by setting up a transfer to your separate savings account when you get paid. This way you’ll be saving automatically.
- Use roundups to save small amounts of money regularly. You can set up roundups in the Beyond Bank app.
We're here to help.
Regardless of which approach you take, balancing spending and saving is an ongoing process. You should regularly assess your financial situation, set realistic goals, and adapt as needed. Get in touch to chat with a member of our team.
Please read this important information.
This information is of a general nature only and does not take into consideration your objectives, financial situation or needs. The information must not be relied upon as financial product advice. Before acquiring any product, you should read the relevant guides, Product Disclosure Document, and consider whether a product is suitable for your circumstances to decide if a product is right for you.
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