How much savings is reasonable these days?

Wanderer2010

Im a 31 yr old man, no mortgage or dependents, I pay out the usual outgoings each month like rent, car insurance, health insurance, food and bills etc. I usually put 500euro in my personal savings account each month if i can as my job is quite well paid. It usually leaves me with about 350euro for all other expenses like leisure, doctor visits or emergencies etc. My question is, what would be a reasonable amount of savings for a man my age? A few of my mates have amassed about 10,000euro in their accounts as a "rainy day" fund and insist you need this amount as a back up in case of redundancy, holiday, unexpected events etc.

Thing is, I have only been able to save since last year after clearing my debts and am up to 4000euro savings, and now feel a tad under pressure not to relax and enjoy my money until I hit the 10,000 mark! Im just looking for peoples opinions on how much savings its reasonable or sensible to have as a back up plan, any replies will be appreciated? Thanks.

P. Breathnach

Well done on clearing your debts.

Personally, I don't think the total amount of your savings is the core question: I would focus more on your savings capacity. Having €4k put aside is okay; the ability to add to it at the rate of €500 a month is very good indeed. It also suggests that if something big crops up and you need money, you can demonstrate that you would be able to service a loan.

Two things to consider:
- If your job is secure, you may have less need for a fund than if there were any danger of redundancy. If you are in a sector that is exposed to risk, then I think it prudent to maximise your savings.
- Do you intend or aspire to own your own home some day? If so, then you would probably need to build up a fund of much more than €10k, as mortgage lenders have become much more cautious since the tiger fled.

Not a comprehensive answer: just some thoughts to feed into your evaluation of your position.

Marcusm

Congrats on having no debts; congrats also on saving more each month than your discretionary expenditure. At your stage in life, absent a job with no prospect of compulsory redundancy, I would aim to have savings to cover 3 months of living expenses. After that, I'd consider myself well provided for. If you do ever buy a property, don't empty your savings and try to keep as disciplined as you've been. It will serve you well in life.

danthefan

Posted something for a different board there, apologies.

What I meant to post here was that I'm a bit younger than the OP (26) but in a similar enough situation, have a fairly safe job (I suppose you'd have to wonder if anything is properly safe these days but it seems secure) and a personal loan from the bank that I used to buy a car. With the way I'm paying off the loan it should be paid by Christmas 2013. I also recently set up a savings account for the first time recently, and set it to pay €250 a month into it. Would I have been better off using this money to service the loan rather than saving, or does it make much of a difference?

My outgoings would be much the same as the OP, rent and regular bills, no mortgage.

I assume stopping the payments into the savings account wouldn't be an issue?

Amtmann

Wanderer2010 wrote: »

Im a 31 yr old man, no mortgage or dependents, I pay out the usual outgoings each month like rent, car insurance, health insurance, food and bills etc. I usually put 500euro in my personal savings account each month if i can as my job is quite well paid. It usually leaves me with about 350euro for all other expenses like leisure, doctor visits or emergencies etc. My question is, what would be a reasonable amount of savings for a man my age? A few of my mates have amassed about 10,000euro in their accounts as a "rainy day" fund and insist you need this amount as a back up in case of redundancy, holiday, unexpected events etc.

Thing is, I have only been able to save since last year after clearing my debts and am up to 4000euro savings, and now feel a tad under pressure not to relax and enjoy my money until I hit the 10,000 mark! Im just looking for peoples opinions on how much savings its reasonable or sensible to have as a back up plan, any replies will be appreciated? Thanks.

I'm in a very similar position to you, but two years behind you age-wise and in the sense that I am paying off a college loan of 14k to the tune of EUR 850 per month, which still leaves me in an OK position each month in terms of disposable income, though I'll have to do without trips abroad until said debt is cleared. I only have to pay back 300 per month, but I want to clear it quickly to minimize interest and be rid of it.

I'm also wondering what is a good rate to save at. Like you, when my debt is cleared, I could save 5 or 6 hundred per month. But as an alternative, I'm wondering if I should increase my pension contribution and also invest in some shares, saving in this scenario only 300 per month.

The allure of saving a lump sum is attractive, though.

P. Breathnach

Amtmann wrote: »

... and also invest in some shares ...

My rule on investing in shares: use only money that you are sure you can afford to lose.

Amtmann

What about increasing my pension contribution? At the moment, 5% of my salary is put into a pension, and my employer matches it and throws another 2% on top of it for good measure.

I can increase my contribution if I wish. Is this advisable?

Islander13

My opinion is that you should aim to hold enough cash so that you could survive for a year without outside assistance. In absolute terms this will vary from a single 25 yr old living with parents to a 45 yr old with young dependents.

Unless you plan to make some capital expenditure you should hold no more than this as cash is risky to hold long term. Diversified investments paying reasonable yield should be the home for the remainder.

StillWaters

danthefan wrote: »

Posted something for a different board there, apologies.

What I meant to post here was that I'm a bit younger than the OP (26) but in a similar enough situation, have a fairly safe job (I suppose you'd have to wonder if anything is properly safe these days but it seems secure) and a personal loan from the bank that I used to buy a car. With the way I'm paying off the loan it should be paid by Christmas 2013. I also recently set up a savings account for the first time recently, and set it to pay €250 a month into it. Would I have been better off using this money to service the loan rather than saving, or does it make much of a difference?

My outgoings would be much the same as the OP, rent and regular bills, no mortgage.

I assume stopping the payments into the savings account wouldn't be an issue?

Well the most economically prudent thing is to pay down debt first. However, there is a psychological benefit to having savings, as well as the handiness of having access to cash in an emergency. In any case if you are on a fixed rate loan, there may be a penalty for overpaying.
I'd say carry on the way you are.

Wanderer2010

Thanks very much for the replies, people. I have also heard the wisdom of having enough spare cash to keep you going for 3 months without assistance in the event of a redundancy etc. My job is secure enough but having said that, they could close the place down in a few years so its hard to say you have a job for life. I could realistically put aside 600euro a month if i made a sensible budget and stuck to it, I would still have enough left for bills and leisure, my main problem is frittering away money here and there on stupid things like pizzas, PS3 games i dont play, stuff that doesnt seem much at the time but cumulatively would make quite an effect!

Thanks again for advice, guys, and I will continue to try my best to put aside at least 500euro a month so that by Christmas I will be in good financial shape.

Are your friend all without a mortgage and dependents too?

Regardless, you have a job, you are in control of your finances and you are making an effort to save. Save away as you are, enjoy your pizza and computer game and don't worry about what other folks have.

Lots of folk out there worrying about not being able to get a treat or even actual necessities for their kids these days so you are in a good position financially, no negative equity or mortgage is also a huge plus for a chap in the early 30s these days

I do think the current economic climate is motivation for us to curtail unnecessary expenditure and to try and control our outgoings, you seem on the ball in that regard.

P. Breathnach

OP, you have a car (see how clever I am: if you pay car insurance, I figure out that you have a car!).

The thing about cars is that they don't last forever, so you will want to replace it sometime. Some years ago I got to the point where I didn't borrow to replace my car; I used some of my savings. That was a milestone for me. I suggest that you build such things into your savings programme - provision for big-ticket spending that you can foresee.

odds_on

Amtmann wrote: »

What about increasing my pension contribution? At the moment, 5% of my salary is put into a pension, and my employer matches it and throws another 2% on top of it for good measure.

I can increase my contribution if I wish. Is this advisable?

Apart from the tax benefits of a pension scheme, the big disadvantage of a pension is that the money you have invested is not available to you in emergencies or as a lump sum (except 25%) when you retire. many people who have mortgage arrears would like to be able to use a private pension to help eliminate mortgage arrears.

I am retired and want to buy a small apartment for my retirement. I don't have enough savings, can't get a mortgage and I can't get my pension (valued at approx 30k thus the max lump sum is 7.5k) as a lump sum to help out. Combined with my savings I might be able to get something half way decent. Furthermore, I have an incurable cancer thus when I die (expected survival approx 6 years), my remaining pension goes to the pension company as I don't have any kin to inherit it. My pension will pay about 35 euros per week.