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How much should I be saving each month?

It can be hard to know how much to put into savings.

People often wonder how much they should be saving every month, and what kind of account they should use for their savings.

There’s no real hard and fast rule, and how much you save will usually depend on what stage you’re at in your life and what your savings goals are.

Decide on your savings goals

While saving in general is important, having a goal in mind can help you to decide how much you need to put away each week/month and what type of account to go for.

Things like holidays or Christmas could be considered short-term goals, while medium-term goals would be things like saving for a new car, or a house deposit, and a typical long-term savings goal would be paying into a pension.

Short-term savings

If you have a short-term savings goal, the best bet would be to firstly work out how much you need to save, and when you need to have it by - it’ll then be easy to figure out how much you need to save regularly in order to reach your goal. So, for example, if you want to pay off your €750 holiday in 6 months’ time, you’ll need to save €125 per month between now and then.

If you’re saving for fairly regular expenses, the best bet would be to opt for a regular savings account - these will generally allow you to vary the amount you save per month, and you won’t have to give notice in order to make a withdrawal. At the moment, savings rates are quite low, so don’t expect to make a huge return on a savings account like this.

One of the best rates on a regular savings account at the moment is on KBC’s Extra Regular Saver account - to sign up for this, you’ll need to have KBC’s Extra Current Account and to pay €2,500 a month into your account. If you meet these conditions, you can earn 2.5% interest on all balances up to €40,000.

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Medium-term savings

If you’re saving towards a bigger goal - like a house deposit or a car - you might want to opt for an account with a notice period, so you can’t easily dip into your savings.

There are accounts with various notice periods available - usually ranging from 7 days to 90 days, so shop around and see if you can find one that works for you. Make sure you don’t lock your money into an account like this if you’re not going to be able to wait the notice period to get your money - breaking the notice period could result in a penalty on your interest.

In terms of how much to save for these medium-term goals, this will really depend on how much you can afford and when you’d like to reach your goal. Generally, saving as much as you can when you’re trying to get a house deposit together is a good idea - between stamp duty, solicitor’s fees, furniture and DIY equipment, the expenses over and above your deposit can quickly add up.

To figure out how much you can afford to save, ensure you complete a realistic budget - taking into account all of your income and expenses, and leaving a buffer for unexpected expenses, too. The Budget Planner from the Competition and Consumer Protection Commission is a good place to start.

When this is done, see how much you have left over each month - if any - and commit to putting away a certain amount each time you get paid. If you don’t seem to have leftover cash, see if you can cut down on any of your discretionary spending, like eating out, cinema etc., to help you reach your goal.

You should regularly review your savings too - if you build up a decent lump sum, and don’t need immediate access to the money, you may make more interest by moving this lump into a fixed-term account.

Long-term savings goals

In terms of long-term savings, the biggest goal for most of us is to have an income in retirement. In order to future proof for this, it’s a good idea to pay into a pension from as early as possible. It may seem like retirement is a long way off, but the earlier you start saving towards it, the less pressure you’ll be under as the years go on.

According to Irish Life, if you start saving at 25 and want a pension of 50% of your salary when you retire at 65, you’ll need to put away 27% of your salary each year. If you don’t start paying into a pension until you’re 40, you’ll need to put away 45% of your salary - so it’s a huge difference.

The good news is that pensions are a very tax-efficient way to save. This is because your pension contributions are deducted before your tax is worked out. Irish Life says this means that if you contribute €300 a month, your take-home pay will only go down by €180 if you pay tax at 40% and by €240 if you pay tax at 20% - but the full €300 will be invested into your pension plan.

Pensions can be a bit of tricky business, so it could be a good idea to speak to a broker about your options before signing up.

Start saving today

Although it may seem daunting, putting away even a small amount each month will be a big help in the long-run. Whether you just want to manage the costs of Christmas or holidays, or you have a bigger goal, everything adds up - so get started and you won’t look back!