With many financial experts suggesting that we should save 20% of our take-home salary for big purchases, how long will it take us?
A new study by comparethemarket.com bases the average 20% saving figure on the widely-recognised 50/30/20 guideline that suggests 50% of your income should be spent on essentials such as housing and utilities, 30% on non-essentials and entertainment, with the remaining 20% being saved.
The study shows readers how long it will take them on average to save for their biggest life purchases. All figures are based on the average UK salary of £29,832, which amounts to a post-tax, take-home figure of £1,985 per month. However, the tool will give you the results for any salary band.
For more expensive items such as a car or wedding, it would not be possible to save the required amount within a 12-month period based on the average salary.
While not quite as large a purchase as a new car or dream wedding, holidays still come with a hefty price tag that has to be factored into a saving routine. According to the ONS, most people spend around £670 each on their trips abroad.
If you were to save for one year for a holiday, this would mean putting aside £56 each month, amounting to 3% of your monthly income if you earn the UK average salary. However, dedicating the full 20% of your monthly income to saving for that dream vacation means you could be heading off in just over two months by putting away £397 each month.
New car craving
Whether your current car is reaching the end of its lifespan or you just feel like treating yourself, nothing quite beats that new car feeling. The most popular car in the UK is the Ford Fiesta, with an average retail price of £15,665. So, how long do you need to save to drive off in a brand new car like this?
It might be unrealistic to try to save for this purchase in just one year, as the study shows this would mean saving £1,305 each month – 66% of the average take-home salary. Instead, if saving the recommended 20% (£397) each month it should take around 40 months (a little over three years) to make this purchase outright.
Aside from a house, a wedding is probably one of the biggest items of expenditure most people will make in their lifetime. A wedding isn’t just one purchase, of course: from the venue, to the dress, to the flowers, it is tens if not hundreds of smaller purchases that, on average, add up to £32,273.
Many people go into an intense saving mode in the run-up to their wedding and there have been countless articles written on how to cut back and make savings for the big day. If you’d rather save sensibly and slowly, our handy tool demonstrates how long it may take the average bride and groom.
Following the 20% model, and saving £397 each month, would mean a £32k wedding pot would be ready in 81 months (just under seven years), although two people putting these savings aside would halve this time. It would be virtually impossible for someone on an average UK salary to save for this kind of wedding in just one year. They would have to somehow set aside £2,689 each month, which is 136% of the average monthly take-home pay.