How Much Money You Should Save By Your 30s & 40s #savingmoneytips #personalfinancetips
If your goal is financial independence, you’ve probably wondered: How much should I be saving to ensure a comfortable future?
In this Short, I share Fidelity’s guidelines on how much you should save by your 30s and 40s, and I share actionable tips to help you increase your own savings.
00:00Fidelity's guideline for people aged 30 is to have one year of your salary saved up.
00:05This includes your savings accounts, your pension or your investment accounts.
00:10According to data from the ONS, the average annual salary in the UK for people aged between 30 and 39 is just over £37,500.
00:20So that would mean someone who's earning this amount of money at 30 would be targeting to have the equivalent amount of money in savings already.
00:28The reason for targeting to save this amount of money by 30 is the benefits you get from compounding your investments.
00:35If someone who is 30 is able to invest £35,000 of savings and then in addition they're able to invest £500 per month on top,
00:44assuming an average annual rate of return of 8% over a 35-year period, they would have just over £1.5 million by 65.
00:52That's pretty good going.
00:54The earlier you can save and invest, the more benefit you can get from compounding your investments.
01:00In your 30s, you want to build on what you've learnt from your 20s and what worked well for you.
01:04And then you want to focus and double down to increase your savings and wealth.
01:08The two main focuses for your 30s are, number one, to aim to save around 10-20% of your annual income into your investments or your pension, or even more if you can.
01:19And number two, avoid lifestyle inflation. As you earn more, be careful not to just spend more too, as it makes it very hard to actually increase your savings if you do this.
01:29In London, in the city, I would always see people earning more and more money, getting promoted, increasing their income,
01:35but then they would spend it all on flashy new cars, designer clothes or expensive meals out.
01:40If you can do your best to keep your expenses at a similar level or within your means while your income goes up,
01:47you'll find you're able to grow your savings and wealth at a much faster rate.
01:50The next stage group is people in their 40s.
01:53According to Fidelity, the target for this group is to save up three times their salary.
01:58So that would mean if you're earning a £50,000 salary, you'd be targeting to save £150,000 by 40.
02:05You're probably thinking that feels like a lot, and you might feel like you're a long way off actually achieving it.
02:12But let's break down the numbers behind that target.
02:14In the example of saving £150,000 by 40, this takes into account the gains you make from compound interest from saving the original investment by 30.
02:24If you're able to invest £50,000 at 30, then the value of your investment by 40 would be £108,000, assuming an 8% annual return.
02:34So the amount you'd actually need to save is the difference between £150,000 and £108,000, which is £42,000,
02:43or the equivalent of around £350 per month over that 10-year period.
02:49You'll need to run the numbers for your income to work out how much you would need to save.
