How Much Money You Should Save By Age #savingmoney

Matt | Personal Finance

In this video, I share Fidelity’s guidelines on how much you should save by age, looking at 20s, 30s, 40s, 50s and 60s, and I share actionable tips to help you increase your own savings at every stage of life to stay on track towards a secure financial future including how much to save for retirement.   #savingmoney #personalfinance #moneymanagement #moneytips #savingsbyage

Transcript

00:00If your goal is financial independence, then you're probably like me and you've asked yourself the

00:04question, just how much should you be saving in order to have a comfortable future and retirement?

00:09In this video, I'm going to cover the typical savings by age from your 20s all the way to your

00:1560s. And I'll also share some tips on how you can increase your own savings. If you're new to this

00:20channel, I'm Matt. I'm a finance consultant. I've spent over eight years working for one of the top

00:25consulting companies in London, and I now run my own company. On this channel, I talk all things

00:31personal finance. So let's start with the savings figures if you're in your 20s. According to a

00:37survey by Finder, the average savings for people aged between 18 and 24 in the UK is £3,636. And if

00:46you're aged between 25 and 34, the average savings is only slightly more at £3,748. If you're in the

00:55US, it's similar. According to data from the Federal Reserve, the average savings for people

01:01under 35 is $5,400. In your 20s, you might be fresh out of college or university with student debt,

01:08or maybe you've just completed a training program or apprenticeship and you're just starting your

01:13career. Your 20s is more about exploring different things, trying to learn as much as possible and

01:19building the right financial habits that will pay off over the long term. Some of the key things to

01:24focus on in your 20s are number one, try to continually build your skill set. So you increase

01:29your value on the job market. In your 20s, you're typically at entry level jobs. So if you can increase

01:35your skills, then in turn, you'll increase your earning and income potential. And that will enable

01:40you to gradually start to save more. Number two is paying off any high interest debt. It's very difficult

01:45to build your savings and your wealth if you've got high interest debt from things like credit cards,

01:50car loans, personal loans, or student loans. You can often feel like you're living paycheck to paycheck.

01:56As your monthly pay comes in, you spend it on rent, bills, paying off any credit card interest.

02:01And then at the end of the month, you haven't actually got any money left to save. It's a trap

02:06which can be difficult to get out of because high interest debt often grows faster than any investments

02:11can make. So if you've got any high interest debt, make this a priority to pay this off as soon as you

02:17can. Number three is to track your spending and to save an emergency fund. One of the things I found

02:22really helpful in my 20s was to have an income and expenses tracker. It helped me to set a goal on

02:28where I wanted to get to, to identify what I could save and invest each month, and also to target

02:33reducing the cost of big ticket monthly expenses so I could manage my budget to be within my means.

02:40Work towards saving at least three months of your living expenses to cover any financial emergencies,

02:45such as periods of unemployment or sick leave, and then put that money aside and save it in a high

02:51interest savings account. Number four is to open up a stocks and shares ISA. Once you've done the

02:56steps above, even if you don't have much money to put into the account, open up, put in whatever you

03:02can at this stage, even if it's just a few pounds, as it will help you to start to learn from an early

03:07age how to invest. And also the power of compounding your investments is so strong over time,

03:12which I'll come to in a bit more detail shortly. Next is savings for people in their 30s. Fidelity's

03:19guideline for people aged 30 is to have one year of your salary saved up. This includes your savings

03:25accounts, your pension, or your investment accounts. According to data from the ONS, the average annual

03:31salary in the UK for people aged between 30 and 39 is just over £37,500. So that would mean someone

03:40who's earning this amount of money at 30 would be targeting to have the equivalent amount of money

03:45in savings already. The reason for targeting to save this amount of money by 30 is the benefits you

03:51get from compounding your investments. If someone who is 30 is able to invest £35,000 of savings,

03:58and then in addition, they're able to invest £500 per month on top, assuming an average annual rate

04:04of return of 8% over a 35 year period, they would have just over £1.5 million by 65. That's pretty

04:11good going. The earlier you can save and invest, the more benefit you can get from compounding your

04:17investments. In your 30s, you want to build on what you've learned from your 20s and what worked well

04:22for you. And then you want to focus and double down to increase your savings and wealth. The two main

04:28focuses for your 30s are number one, to aim to save around 10 to 20% of your annual income into your

04:35investments or your pension, or even more if you can. And number two, avoid lifestyle inflation. As you

04:41earn more, be careful not to just spend more too, as it makes it very hard to actually increase your

04:46savings if you do this. In London, in the city, I would always see people earning more and more money,

04:51getting promoted, increasing their income, but then they would spend it all on flashy new cars,

04:56designer clothes, or expensive meals out. If you can do your best to keep your expenses at a similar

05:01level or within your means while your income goes up, you'll find you're able to grow your savings and

05:07wealth at a much faster rate. The next stage group is people in their 40s. According to Fidelity, the

05:13target for this group is to save up three times their salary. So that would mean if you're earning a

05:18£50,000 salary, you'd be targeting to save £150,000 by 40. You're probably thinking,

05:25that feels like a lot, and you might feel like you're a long way off actually achieving it.

05:30But let's break down the numbers behind that target. In the example of saving £150,000 by 40,

05:36this takes into account the gains you make from compound interest from saving the original

05:41investment by 30. If you're able to invest £50,000 at 30, then the value of your investment by 40 would

05:48be £108,000, assuming an 8% annual return. So the amount you'd actually need to save is the difference

05:56between £150,000 and £108,000, which is £42,000, or the equivalent of around £350 per month over

06:05that 10-year period. You'll need to run the numbers for your income to work out how much you would need

06:10to save. The key thing here is that the benefits from compounding investments from 30 means the amount

06:16to then save for the age 40 target is smaller. So the earlier you can invest, the easier it is to

06:22achieve this savings guideline. The two key focuses for your 40s are number one, to maximise your pension

06:28contributions. In the US, you have 401k match. And in the UK, there are similar pension benefits from

06:35employers where they match what money you put into your pension up to a certain percentage of your

06:40salary. If you have this option, take advantage of it as it basically doubles your investment,

06:46which not many investments can do. If you're self-employed, you can also set up a self-invested

06:51pension account to take advantage of some of those tax benefits. Your 40s are some of your highest earning

06:58years. So you really want to be saving at least 15 to 20% of your income into your pension. Number two

07:05is to put in place your retirement plan. There are many different variables to consider on what is

07:10going to be sufficient to save for retirement, including at what age will you retire and for

07:15how long, how much will you spend in retirement and what lifestyle do you want to have? And will

07:20you need to provide any financial support for care for your parents or family in old age? It's best to

07:26speak to a financial advisor to work out exactly what's going to be best for you based on your

07:31circumstances. By the age of 50, the savings target gets even bigger. Fidelity recommends having six

07:38times your salary saved up. So that would mean if you're earning 60,000 pounds, the savings target

07:44would be 360,000 pounds by the age of 50. The key focus for this age group is to review your savings

07:51and investment portfolio against your retirement plan. Wealth preservation starts to become more of

07:57a focus. It's typically recommended to review your investment mix to make sure that your investments are

08:02less risky and more stable the closer you are to retirement. It's also at this point that you start

08:08to look at turning your investment portfolio into investments that can generate a regular income to

08:13support your pension living expenses, rather than having all your investments focused on wealth

08:18appreciation. Again, it's best to speak to a financial advisor as they will look at a number of factors,

08:24including things like based on your lifestyle and your planned retirement age, whether you'd outlive your

08:30current savings forecast. And they can also help you to model the best and worst case scenarios for

08:35your retirement. By the age of 60, the savings target is to have eight times your salary. And by 67,

08:41the target is 10 times your salary. At this point, you really want to make sure that you have enough

08:46saved up to maintain your lifestyle in retirement. Again, review your savings and investments with a

08:53financial advisor to make sure that before you stop working, your finances are in order to support your

08:58retirement. You really want to be able to enjoy this time with family and friends. You've earned it from

09:04all of those years of managing your finances. So in summary, Fidelity's guide goes from targeting to

09:09save at least one times your salary by 30, all the way up to targeting to save 10 times your salary by

09:1567. Fidelity do say these milestones are aspirational, and it's unlikely that you'll meet all of them across

09:22the different age groups. But they can serve as helpful goalposts to make a plan to make sure that you have

09:27enough money saved to support the lifestyle that you want in retirement. If you feel like you're

09:32behind, don't worry, there are ways to catch up. The key is to understand your current situation and

09:38to take action. Speak to a financial advisor who can help you put together a savings plan. I hope some

09:44of the tips and high level guidelines in this video can help you. Feel free to add any questions in

09:49the comments and give the video a like and a subscribe and I'll see you on the next video.

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