How much of my income should I save?
Determining the right amount of cash to save is an important financial skill. By utilising proven methods, you can strike the perfect balance in your savings strategy.
The 50/30/20 approach
The 50/30/20 approach to saving is one of the most commonly used tactics. Basically, 50% of your spending should go towards needs (rent, food, bills, etc.), 30% towards wants (entertainment, travel, dining out), and 20% towards savings.
So how does this work in practice? Say you make $4500 per month after tax—your resulting split would be:
| Needs | Wants | Savings |
| $2,250 | $1,350 | $900 |
How strict is this savings tip?
Not at all! Some people may want to swap these numbers around if they're more concerned with saving and not as bothered with wants.
This could mean a 50/20/30 make-up where you spend a month saving extra and alternating back to 50/30/20 the following month.
By moving the numbers around to a 50/20/30, your $4500 a month split would look like this:
| Needs | Wants | Savings |
| $2,250 | $900 | $1,350 |
Age based savings
Another way of determining how much of your income you should save is by age. Your savings goals are likely to evolve as you progress through different life stages and this can be a useful guideline. It could look like:
| In your 20s | In your 30s | In your 40s and 50s | 60s and beyond |
| You could aim to save 10-15% of your income. Focus on building an emergency fund and starting retirement savings. | You might save 15-20% of your income. Balance between short-term goals (like buying a home) and increasing retirement contributions. | Aim for 20-25% savings. Accelerate retirement savings or build up an offset account if your home loan allows it. | Hopefully you’ve saved a nest egg, so your % can drop. Save 10-15%, focusing on maintaining wealth and preparing for retirement expenses. |
Retirement goal focused savings
Another way you can calculate how much you should save is by setting retirement goals and trying to meet milestones by certain ages. These can look like:
- 1x your annual salary by age 30
- 3x by age 40
- 6x by age 50
- 8x by age 60
- 10x by age 67
How can you supercharge your savings?
After you’ve figured out the split that makes sense for your situation, knowing where to deposit your savings is the next step.
If you’re looking to save over the short term, then a high-interest savings account with a good introductory rate account could be the most helpful. These accounts offer some pretty high rates for 3 to 6 months. A shorter term deposit could also be advantageous.
Alternatively, if you’ve got a long term goal, a ‘conditional’ bonus rate savings account could be a good option. By fulfilling certain conditions—like regular monthly deposits or no withdrawals—you’ll get a higher bonus rate. It’s important to note that, should you fail to meet these conditions, then you’ll revert to a lower or no interest base rate.
Comparing savings accounts
Knowing whether or not the savings account you’re aiming for has an above-average rate can be difficult. That’s why the team at Mozo have crunched the numbers and found the average rates for the 274 savings accounts we track.
- All Ongoing: 3.50%
- Only Bonus: 4.61%
- Only Introductory Rates: 5.01%
- Only Unconditional Rates: 1.40%
* Personal account of $10,000, correct as of 24 July 2024
Want to compare savings accounts? You can check out our savings accounts hub, if you prefer, check out some of the providers in the table below…
