How to save money from salary
Whether you’ve recently secured a new job, been given a raise, or have a specific savings target in mind, you might be wondering, “how much of my salary should I be saving?” The answer to this question will differ from person to person, and depend on whether you have specific savings goals. If you’d like to start saving money from your salary, here are a few tips, tricks, and methods you should consider.
Consider savings goals: There’s no one-size-fits-all answer to how much of your salary you should save each month; it depends on your financial goals and lifestyle
Budgeting strategies: While the 50 30 20 rule is a popular guide, your savings plan should be tailored to fit your individual needs, considering expenses and debts
Practical savings tips: You could track expenses, prioritise savings, reduce unnecessary spending, and consider additional income streams to boost your savings efforts
How much of my salary should I save each month?
Many experts suggest adopting a budgeting approach known as the 50 30 20 rule. By following the 50 30 20 rule, you aim to put 50% of your monthly salary towards ‘needs’, or necessary expenses, 30% towards ‘wants’, or fun activities, and the remaining 20% should be saved.
Alternatives to the 50 30 20 rule
Everyone’s situation is different, and if you’re in an expensive city or on a tight budget, you might notice that most of your pay cheque disappears once you’ve covered rent and bills. This is especially true given the soaring cost of living in the UK lately. So, how much of your salary should you save if you’re on a low income? You could explore other budgeting methods such as the 70 20 10 rule, whereby 70% of what you earn goes towards wants and needs, 20% for savings and investments, and 10% for debt repayment or donations.
You might try playing with the ratio and aim for a lower percentage of salary to save, like 10% or even 5%. While putting away this amount might not seem like a lot, it can really add up over time, especially if you’re happy to lock your money away in a high-interest savings account.
If you don’t have much spare cash each month, check out these ways to save money on a tight budget.
How to save money from salary every month: 9 tips
If you’re finding it difficult to reach your savings goal, a simple approach you can take is ‘earn more or spend less’. This serves as a handy reminder that in order to truly save effectively, you must either cut back on certain things or pick up a side hobby that will allow you to earn extra cash.
To make the process of saving from your salary easier, you might want to follow these steps:
Break down your payslip
Track your expenses
Create a budget
Spot where you can save
Pay off existing debt
Avoid impulse spending
Prioritise yourself
Reduce your energy consumption
Amplify your income
Let’s look at each of these steps in a little more detail:
1. Break down your payslip
Before you can start to think about how much of your salary you save, you need to first establish if it’s even possible. The best way to do this is to take a look at your payslip and see what you have left after all your monthly expenses.
If you’re self-employed or don’t know exactly how much you’ll earn each month, this can be more difficult. If you’re in this situation, consider using your previous year’s earnings as an average to estimate what you can save. Alternatively, you could choose to adapt your savings strategy on a rolling monthly basis, depending on what you have earned.
2. Track your expenses
A great way to weigh up what you could save is to track all your expenses for one month. Make a list of your bills and subscription services, and keep all your receipts. Then, divide them into two columns: needs and wants.
For example, your water, electricity, and gas bills are not something you want, but rather something that you need to live. On the other hand, expensive dinners out and random purchases are often something you buy because you want them.
By putting your monthly expenses into these two columns, you’ll be able to pinpoint areas where you can save money rather than splashing the cash on unnecessary items. You can do this yourself by using something as simple as a pen and paper, or by downloading an app designed to do it all for you.
3. Create a budget
After tracking your expenses, you should be left with the bones of a budget plan. This plan essentially acts as your savings bible, showing you what you can afford to save and spend each month. It’s important to update your budget if your income changes. Regularly revisiting and adjusting your budget ensures that it remains aligned with your savings goals and helps ensure financial stability.
4. Spot where you can save
Saving money doesn’t mean cutting out all the fun things from your life; it’s about adopting a more savings-savvy mindset. Look for weeknight discounts and deals offered by your favourite restaurant, use 2 for 1 codes when you go to the cinema, and look out for loyalty scheme rewards at your local supermarket.
If you’re still struggling to identify where you can save some money, you might have to dig deep into your budget to find a gap, or go without some of your usual luxuries for a while. Read our guide to living frugally for more tips to help you prioritise your spending, so you can afford the things that matter most to you.
5. Pay off existing debt
Before you start to save, you might want to weigh up saving vs. paying off any existing debts you have. While it can feel much nicer to have a reassuring nest egg, directing your surplus funds to paying off your debts and starting from a clean slate may be a more strategic choice. Remember to factor in your credit card payments into your budget to avoid having to dip further into your salary. Check to see if the interest on debt such as loans or your mortgage outweighs what you’ll earn from your savings. If it does, that’s often a sign that you may want to consider paying off your debt first.
6. Avoid impulse spending
We’re all guilty of over-indulging from time to time, but to save effectively, you’ll need to exercise some discipline. One way to prevent impulse buying is to sleep on it. If you find yourself tempted by the latest gadget or convinced that you need to book a holiday, leave it for a week or so before making your final decision. More often than not, you’ll realise that you don’t need it as much as you initially thought.
7. Prioritise yourself
You might be familiar with the phrase ‘pay yourself first,’ and that is true where saving is concerned. If you decide to adopt the 50 30 20 rule, for example, you can make saving automatic by setting up a standing order. This means that on payday, a designated portion of your salary is automatically transferred to your savings account. By making saving a priority rather than an afterthought, you’re taking a consistent and intentional approach to building your financial well-being.
8. Reduce your energy consumption
You can do great things for both your budget and the environment by looking for ways to reduce your energy consumption. Turning off all appliances at the socket when they’re not in use, reaching for a jumper instead of turning on the heating, and taking shorter showers are all incredibly easy things to do that will help save you money. For further easy money-saving tips, see our guide to how to save money.
9. Amplify your income
If you happen to have spare time and a desirable skill, why not put them to use and amplify your income? Whether it’s offering dog walking, DIY services, or baking, selling your skills in your spare time could even open doors to a new career. Alternatively, you could take on temporary weekend work or part-time roles to boost your income and help you save that little bit extra from your salary each month.
Where should I save money from my salary?
After deciding how much salary to save, the choice is ultimately yours when it comes to where to save your salary. You might want to consider online savings accounts, which can be a great way to start saving because they offer an easily accessible service that you can use from anywhere in the world, at any time.
Online savings accounts can often provide a larger variation in terms of choice as opposed to brick-and-mortar banks, with more competitive rates of interest and an increased focus on ethical banking. When choosing the right savings account for you, you might consider the following factors:
Does this account have any restrictions that won’t work for me?
Does the account allow me to top up whenever and however I want?
Will the interest rate on this account help me reach my savings goals?
Some of the most popular types of savings accounts include fixed rate bonds, notice accounts, and easy access accounts.
Fixed rate bonds can be a good option if you have a lump sum of money you can lock away for a set period of time to earn a competitive rate of interest.
Easy access savings accounts, on the other hand, offer more flexibility, allowing you to access your savings whenever you like. However, they tend to offer lower rates of interest. Notice accounts are almost a hybrid of fixed rate bonds and easy access accounts. They allow you a degree of flexibility in that you only need to give a short notice period, typically between 30 and 90 days, to your bank to access your savings – plus they also provide competitive rates of interest.
Open a savings account with Raisin UK
For a comparison of the best UK savings accounts, explore the Raisin UK marketplace. Simply register for a Raisin UK Account, log in, and apply for a savings account that aligns with your salary-saving goals. It’s free to open an account and registration only takes a few minutes.