Saving money is for many people one of the key reasons to move to the UAE. An attractive tax-free salary allows some not only to enjoy their lavish lifestyle but also invest in stocks, pay off their mortgages, support families back home and still save for their future. The question is though, how much should you be saving each month?
There are many ways to answer this question and ultimately you should save a minimum of 20% of your income, however, a lot depends on your situation and finances. We’ve got some handy tips to help you find the answer so you can achieve your ultimate money goals.
First of all, consider your financial goals
If you aim at nothing, you’ll hit it every time. Zig Ziglar
It is difficult to achieve a goal you don’t have to get real with what it is that you want to achieve.
To better understand how much you should save each month, start by looking at your goals. Your goals might be saving for a down payment on your dream home, setting aside money for a wedding, saving for your retirement or sabbatical, saving for a holiday this summer and so on. These are your saving buckets with a nominal value attached to them. If there’s a deadline on any of these, make sure you include it too as it will essentially help you divide your goals into:
- Expenses within less than a year
- Expenses within 5 years
- Expenses that are 5 or more years away
So here you end up with financial goal buckets with a date and a nominal value attached to them which looks like this:
Second of all, do the maths
Take each of your goals and divide the time frame by the amount of money you need for it. It will look like this:
Run this calculation with every goal on your list. You will probably get to the point where you realise your dream lifestyle exceeds your monthly income – and fear not – we all have been there.
Here, you should also calculate your monthly spendings and recurring costs that you have so you know how much money you have to spare.
What to do when your goals exceed your income?
There are few ways to go about it and for this exercise, we would suggest trying them all and see where you get in the end.
- Revisit and review your goals – Check if the budget is a bit too generous or if there are cheaper alternatives. I.e. maybe your dream holiday can cost you AED15,000 with a lovely Airbnb instead of a plush hotel?
- Prioritise your goals – are there any goals that can be paused for the time being? Maybe buying a new car is not an immediate need, more of a 5-year goal?
- Review your current lifestyle – check where you can cut your expenses and therefore increase your monthly savings. Maybe you don’t need this annual subscription to a car club anymore, or maybe you could cut down on your monthly beauty deliveries? Or cook at home instead of ordering delivery every day of the week?
- Look for extra income opportunities – if you have some spare time on your hands, consider some of our extra income ideas which we mentioned on our blog here. We have also posted a lengthy article about passive income ideas which are a great way to add additional long-term income streams to your budget.
Hopefully, this exercise helped you get more realistic with your goals and funds.
Next, start saving a percentage of your income
The most popular go-to way to calculate your savings is the 50/30/20 rule for budgeting where:
- 50% of your budget goes toward essential expenses, which includes your rent or mortgage, bills, transportation, essential shopping
- 30% goes towards wants which includes an occasional night out, entertainment, staycation or purchase of a new iPhone.
- The remaining 20% goes towards your savings and investment goals
Why 20% towards your savings?
This is an optimal percentage to save 25x your salary in your working years. See the calculations below:
While this 50/30/20 budgeting rule is a perfect scenario, it might not work for everyone.
Other budgeting methods include a Zero-based Budget, The 60% Solution and many more which we covered in this article.
So how much should you be saving?
It is entirely up to you but if you want to get closer to reaching your goals make saving money your priority. And remember, saving money doesn’t have to be a struggle. You can even start with 100 AED a month and build it up as you go along and adjust your costs of life or get extra money in. Putting any money into savings will help you build a long-term savings habit.
Where should you put your savings?
We recommend using a savings account so you can make your money work for you or at least a separate account where you put your savings and keep them off your eyesight.
We at Bankiom believe people deserve the liberty to manage and grow their money how they want. We have recently launched in the UAE and every month we are adding new awesome features to help our users manage, organise and grow their money. That includes savings. Download our app to check it out.