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How much of your savings should you invest

Both savings and investments are important and knowing when to invest and when to save can be very valuable.

Leaf Financial Advisers Ltd. - Trusted Financial Advisors

Should I invest all my savings

Putting money aside for the future, whether that is for an unexpected emergency or to help pay for your retirement, is something that most people are aware they should be doing.  But although we might know that we should be saving money each month, the next question is how much is enough?

Everyone’s situation will be different and the amount you put aside on a monthly basis will depend on a number of factors; including how much surplus income you have, what you are saving for, how soon you might need the money, and how much you can afford.  

Knowing how much of your savings should be invested can help you maximise the growth of your savings pot whilst not risking too much of your hard-earned money.

Do you have debt?

Although it is important to be putting money aside, this should not come at either the expense of putting yourself in financial difficulty or if it ends up costing you more.  Many people have debts, and some of these types of debts can be very expensive in terms of interest costs.  It is generally advisable to pay off high-interest debts before putting aside money for savings. 

You may find that some of your debts are on very low-interest rates, and you may get a higher rate in a savings account, in which case the decision is less straightforward, as you may get a greater return from your savings than your debt is costing.  However, debts have to be paid eventually and keeping them around runs the risk of there being a time when your situation changes and the debts become less easy to manage.

As such, paying off credit cards or personal loans should generally take priority over putting money into savings, because the interest rates on this type of debt are typically much higher than the interest you can earn on your savings.

More thought needs to be given to lower interest rate debts such as mortgages, zero interest credit card debts and student loans where the repayments and default penalties work very differently from standard loans.

What is the difference between saving and investing?

Both saving and investing involves putting money aside for a future event.  The difference is that investing tends to be more longer-term, riskier and often more complex.  However, investing is generally viewed as delivering higher returns over the longer term. Investing usually involves buying assets such as stocks, bonds, commodities or property, often through a broker.  Whereas savings usually involves using a savings account at a bank, building society or somewhere such as the government-backed National Savings and Investments*.  Knowing the difference between saving and investing can be an important first step in deciding how much to save and how much to invest.

What are you saving for?

How much you decide to save partly depends on what you are saving for.  If it’s for something urgent that you need to achieve soon (such as a house deposit, or a large purchase such as a car) then you may decide that saving takes priority over your day to day discretionary spending.  This may be more relevant if what you are saving for is urgent, such as a rainy day fund or for a new boiler.  On the other hand, if you are saving for something that is further away (such as your retirement) then you might want to give yourself more flexibility in what you put away and when.

If you need to build an emergency fund, for example, that may take priority over any other type of saving but could be a goal that’s reached relatively quickly. On the other hand, if you’re saving for retirement, you’ll be aiming to amass a much greater amount over a much longer period of time.

Emergency / Rainy Day Fund

A Rainy Day Fund is money that you can access immediately and without penalty in case of an emergency, such as your car or boiler breaking down.  It not only allows you to pay for an emergency when needed but also saves you from taking out expensive short-term finance to pay for it.  General guidance is to have set aside either at least three months’ worth of salary or 6 months’ worth of expenses or the higher of them.  This is a general rule of thumb, however, and everyone’s situation is different.

Saving for a house deposit

With house prices continuing to increase, saving up for a large deposit is still a necessity for many people in the UK.  Working out how much you need can be difficult, as house prices keep changing.  To get a rough idea you can look at house prices for the sort of property you may be interested in, then work out how much of a deposit you need, possibly with the help of a mortgage broker to work out the percentage deposit you may require.  Although most people these days can purchase with a 5% or 10% deposit.

Once you have worked out your theoretical lump sum and when you want to purchase you can see how much you need to put away each month. 


Having retirement savings as your goal will likely need a very different approach.  State Pension Age (SPA) for many will be either 67, 68 or similar (we can’t be sure as the SPA is likely to change over the years) and so for those currently under 57 they will have a potential investing horizon of decades, giving the potential of compounding investment returns to drive significant growth in the retirement pot.

However, although you have a much longer investment horizon, the end goal is likely to be a lot larger.  Providing an income over a retirement that may be as long as 20 years or more, can be expensive and require a large pot to be built up.

Saving for your retirement doesn’t have to involve just investing, and a mix of savings and investments may be a better solution.

Where should I invest?

Investing is a broad term and what you should invest in and the best way to do so is by itself a complicated question.  It will depend on a variety of factors such as how long you are investing for, your objectives, your situation and views on things such as risk.  If you do want to invest then it may make sense to have a chat with a financial adviser, many of whom will offer a free consultation to help give you an idea of what sort of advice you might need and how much it might cost.


Final Thoughts on how much to invest

Once the difference between savings and investing is understood then a decision can be made on how much of your savings to put into long term investments.  There is no one size fits all answer and everyone’s situation and solution will be different.  It will largely depend on how much you have to set aside and what and when your goals are for the pot you are building up.  If you want to explore investing & pension more and see how you may get the best out of them, then it could be worth speaking to an independent financial adviser, who will be able to offer some professional guidance and help you make a decision.  If you would like to know any more about savings and investing then please do get in touch, as we are always happy or help.

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