Savings amount.. opinion on my plan.

Hi Guys,

I'm just starting out now and would like to run my current situation re savings by you guys.

I'm kind of unsure about how much I should be saving each month and also what proportion should be in my PRSA and what proportion in a readily available (notice) account.

Also, when people talk about savings do they mean a savings fund that you don't touch unless you need a deposit for a house or are extremely stuck etc? Should you have a sub saving account for smaller things like holidays, car service, shopping spree etc

I know this is my first post here and mods feel free to snip this if it's inappropriate.. I'd like to give my current situation and get your guys opinions on whether it is unbalanced i.e. I need to save more or need to live more.

So, I am 26 years of age. I take home about €2,200 each month, that's after VHI BIK and pension contributions (employer + self). Combined pension contributions each month are €382.50.

My rough budget/expenses are as follows:

Rent - 565
Car Loan - 267
Living - 600
Car Running - 150

That leaves me with €618 remaining. Now, I think €500 would be a reasonable amount to save each month, that's 23% of my take home pay. Now the question is what is that saving for? Thats an annual saving of €6000. I think I should have a large amount of that left after a year logically, I would use part of that money for car tax (710) and a holidays. Part of those expenses would come out of current expenditure.

That leaves the remaining €118. From my rough budget estimates should I be spending that each month or saving it? Note that I am not the type of guy that goes boozing each weekend. I probably do that max twice a month.

A very rough calculation leaves a combined annual saving of €9000. (382.50 + 500) - 1590 (for expenses, car, holiday etc).

That €9000 is approximately 34% of my net income, evenly spread between my PRSA and deposit.

Thanks for reading, what do you guys think?

I'm spending a lot of time thinking about this kind of thing at the moment as well as I will finally be out of debt this summer (barring any other emergencies) and so have been thinking about how I need to divvy up the amount I will have available for savings. There isn't really a right answer to your question as each situation is different and it is something you will have to be constantly checking on and revisiting as your circumstances change. I read a lot of personal finance blogs and lots of people recommend Dave Ramsey and Gail Vaz Oxlade - check their websites for more information. One of the most widely recommended "rules" is to have at least six months worth of expenses (some people say six months worth of salary) saved in an emergency fund, so that might be a good place to start. Another "rule" is that you should always save 10% of your salary at a minimum. Then you have to figure out what are the things you will want to be spending money on. You might find it easiest to open a few different accounts to save for different things - I used to find Rabobank great for that when I lived in Ireland.

One of the only right financial decisions I made when I was young and foolish was when I got a car. I opened a savings account and transferred money (50 a month at the time I think it was) into that every single month to cover annual service and any other maintenance costs. If I got a bonus or any extra money, I also put aside enough to cover insurance and tax. I don't have a car now but I still do something similar and have a savings account that I transfer money to every month to cover annual expenses. Regardless of my debt situation I always keep to this. My list is something like this:

• Household insurances (mandatory under the rental lease I have (in Germany))
• BahnCard (card to get train travel at reduced rate)
• Annual travel insurance
• Membership of car-sharing scheme
• Choir membership and music
• Membership of renters' association
• Replacement of white goods (hoping to have saved enough to replace anything before it breaks down)
• Preserving supplies (apart from singing, this (making jam, bottling etc.) is my main hobby so I put an amount aside to buy jars, new lids etc. if needed)

Your list, obviously, will differ but it's a good idea to think about the kind of things that you have to pay once a year or that cost a lot of money to replace and assign an amount so that you can always have money on hand when costs arise. So for example, figure out how much you spend on car maintenance per year and divide by 12. If you expect to need to replace your phone in the next two years figure out how much you'd be likely to spend, divide that amount by 24 and put that much aside every month. Look at everything you own and when you expect to need/want to replace it and put a number on it. Once I had my list of "have to pay" I added it all up and divided by 12 and then ended up adding an amount for preserving supplies simply because it rounded my total up to 100 per month but I have been glad I did it because even though I've been paying off debt, I still get to have a small amount to spend doing some of the things I love and a less-stressed me is a less-spendy me.

Once I have a bit more available to save I want to save properly for holidays, too and this is where I've realised how expensive it can get. If I want to travel to a particular singing weekend every year, that's about 300 for fee and hotel, another 200 for travel and more for food when I'm there. In addition, choir usually has a rehearsal weekend away every two years, which comes in at about another 150. And I like to try and visit my sister in France every year, which is about another 200 for train fare and spending. So before I've even thought about having a fancy two week holiday somewhere or contemplated a weekend away, I need to have the guts of 1,000 euro saved or, rounding up again, about 100 a month would allow me to have a few choral weekends, visit my sister and maybe get a weekend or two visiting friends every year. If you had asked me a couple of years ago I probably would have thought the suggestion that I'd need to save more than 100 a month just for holidays mad. You really need to spend time thinking about the things you want to do, come up with some figures for them and then incorporate those figures into your monthly budget.

Agree with Rabo bank. Easy to open sub accounts for holidays etc. alongside a 90/30 day demand deposit account.

Well your first object is clear - build up an emergency fund.

This should at a minimum equal to about six months of your average living expenses and that should include things like car service, insurances and so on. This money should be in case or "near cash" investments. Most likely a high yield deposit account or similar.

The thinking behind this is two fold, first to cover emergency situations such as late wages payment, cover for the period between an accident and illness until you get your first welfare payment and so on. And in the second place having such a fund allows you to apply the rest of your savings in more long term investments without the need to suddenly have to dispose of them before they have matured - fixed deposits and equities come to mind here.

Not the such a fund is not intended to be used to cover holidays etc., that should be a separate savings exercise. Hopefully your emergency fund will go untapped for most of your working life.

I would think that building up such an emergency fund would be a good objective to achieve in your first year or so. Thereafter you can start to look at more long term objectives such as a house, early retirement and so on.

Thanks for the input guys.

I'm comfortable with the amount i'm saving. The advice i'm getting is that I need to divide up the non pension savings into multiple savings accounts. Emergency, large annual purchases etc with the emphasis on establishing a decent emergency fund first. I think that's where i'll try to stick the extra €118.

+1 on the Rabo account also, I'm already with them so that's where i'll put the sub accounts.

What do you guys think of my percentages, do they seem reasonable?

Thanks.