Most experts recommend saving at least 20% of your income every month. This is based on the 50/30/20 budget method, which suggests that you spend 50% of your income on essentials, 30% on discretionary purchases, and save or pay off debt with the remaining 20%.
However, the 20% rule may not be the right fit for everyone. Some people may save above that rate, while others struggle to make ends meet. Therefore, this article will help you understand the average total savings by age group and help you figure out a realistic number that works for you based on your income, expenses, and goals.
Average Saving Statistics in The UK
- In 2020, the average UK resident had around £6,757 in savings. This figure is low considering the average living expenses in the UK is £2,268 for a family of four and £651 for individuals. That’s why people often borrow £50 payday loans from direct lenders to supplement their monthly income.
- One in every 10 or 9% of UK residents didn’t have any savings in 2020.
- UK residents save about 8.21% of their monthly income. In 2020 in the UK, the average total savings of people aged eighteen to twenty-four was £2,481.16.
- Whereas the average total savings of people aged twenty-five to thirty-four was £3,544.16.
- Meanwhile, the average total savings of people aged thirty-five to forty-four was £5,995.92.
- Also, the average total savings of people aged forty-five to fifty-four was £11,013.99.
- Finally, the average total savings of people aged fifty-five and over was £20,028.60.
The Most Common Forms of Saving in the UK
While there are several different forms of savings in the UK, the most common types are short-term and long-term savings accounts, as well as Individual Savings Accounts (ISAs).
Short-Term Savings Account
A short-term savings account can be used for a specific goal such as credit card debt repayment, insurance payments, vacations, weddings, or buying a new laptop. You can also use your short-term savings account to build your emergency fund with three to six months of your regular expenses. Your savings account creates a safety net to take care of unexpected expenses, such as low-cost medical emergencies and home repairs.
Long-Term Savings Account
A long-term savings account is used for distant goals that may take more money and time to reach than short-term goals. These include planning for retirement, buying a car, major home renovations, taking care of larger medical bills, and building savings in case of a job loss.
Individual Savings Accounts (ISAs)
ISAs are tax-free savings accounts. Individuals who have ISAs are not taxed at withdrawal nor during contribution. Its annual contribution limit for the 2022 to 2023 tax year is £20,000 for adult ISAs and £9,000 for junior ISAs. With that said, there are several different types of ISAs. For example, there are four adult ISAs available: cash, investment, innovative finance, and lifetime ISAs.
Moreover, if you have a child living in the UK under 18, you can open a Junior ISA to give them a head-start in life. There are two types of Junior ISAs: junior cash and junior stocks and shares, and anyone can contribute. However, your child can only access their account once they turn 18. Nevertheless, here is a guide to help you get familiar with each ISA type:
A cash ISA works like a traditional savings account that lets you save money and pays you interest. However, unlike a bank or building a society savings account, you don’t have to pay any tax on your interest. Some people consider paying into a cash ISA a safe option because your savings are not subject to market ups and downs like investing. However, the inflation rate can outpace the interest rate you earn.
Stocks and Shares ISA
Stocks and shares ISAs or investment ISAs are a great option for the long term. With an investment ISA, you can put your funds in assets like shares, bonds, property, and commodities. Moreover, you don’t need to pay any tax on your capital gains or income. However, holding a stock and shares ISA may present some risks because there is no guaranteed return on your investment because stock markets go up and down. Nevertheless, this could also allow you to make higher returns than a cash ISA.
A lifetime ISA is designed to help you save for your first property or retirement. You will only be able to deposit up to £4,000 each tax year. However, with a lifetime ISA, you will receive a 25% bonus from the government on anything you put into it. This means that for every £4 you place in your account, you will get an extra £1.
That is a maximum bonus of £1,000 per tax year, and you can contribute until your 50th birthday. If you want to put your money towards your first property, it must be worth £450,000 or less. If you plan to put it towards your retirement, you will have to wait until you turn 60 to withdraw it. A lifetime ISA is only available for people aged between 18 and 39.
Junior Cash ISA
A junior cash ISA works the same way as an adult cash ISA. It enables you to save and invest for your children in a tax-efficient way. You can open a junior cash ISA if your child is a UK resident younger than 18 years old and doesn’t have a Child Trust Fund.
Junior Stocks and Shares ISA
Similar to a stocks and shares ISA, your money will be invested in stocks, shares, and other types of assets. Moreover, your children don’t have to pay taxes on any capital gains or income they receive.
What Should I Be Saving For?
Before you decide what you should be saving for, your first goal must be to build an emergency fund to cover unexpected expenses. Most experts recommend having at least three months’ living expenses in your savings. If you don’t have an emergency fund yet, you may slowly start to work up to it. Once you have built your emergency fund, you can start saving for more specific goals, such as a vacation, house deposit, or retirement.
What If I Am Saving For A Particular Goal?
If you are saving for a particular goal, you may want to save more than 20% of your salary or a specific amount each month to get to your savings goal faster. For example, if you’re going to purchase new furniture worth £10,000 in 12 months, you need to save at least £834 each month to achieve your savings goals. However, if your monthly income is £3,000, you would have to save 27.8% instead of 20%.
What Is A Good Amount To Have In Savings?
Most experts say a good amount to have in your savings is three to six months of living expenses. Having that much in your savings account will likely help you with financial emergencies, such as losing your current job.
How Much Does The Average Person Save Per Month In The Uk?
Most UK residents do not have savings and may not survive a financial emergency considering the average living expenses in the UK. The average UK resident had around £6,757 in financial savings in 2020. Also, approximately one-third of the adults living in Great Britain have savings of less than £600. As a result, they often opt for short-term borrowings, such as.
How Much Of Your Salary Should You Save In The Uk?
It would help if you looked to save between 10% to 30% of your salary in the UK. As mentioned before, most financial advisors recommend you save 20% of your salary. However, the UK has higher living expenses, and saving 20% of your income may be challenging. Moreover, depending on your area, it may be even harder to make the same money. Nonetheless, you can benefit from tax-free ISAs to help you purchase a home or fund for your retirement.
How Much Savings Should I Have As A 25-Year-Old?
The average 25-year-old should have saved 50% of their annual expenses in the UK. For example, if your yearly expenses are £60,000, you should have saved at least £30,000. You should hold at least 20 times your annual fees to retire comfortably.
How Much Savings Should The Average 30-Year-Old Have?
Average savings by age are different in the UK. However, a financially educated 30-year-old should have at least £25,000 in savings and investments.
How Much Should I Have Saved By 40?
By the age of 40, you should have saved at least three times your annual income to live comfortably and contribute towards your future retirement.
How Much Does The Average 50-Year-Old Have Saved?
The average 50-year-old should have at least 40% of their retirement pension saved away. So, if you plan to retire with £1,00,000, then by the age of 50, you should have at least £40,000 saved away.
How Much Does The Average Retiree Have Saved?
The average retiree in the UK has around £730,900 in savings, including savings accounts, ISAs, stocks, and bonds.