How much should I save each month?

It is often said that money does not bring happiness. Although we do not wish to make any statements about this, we do believe that possessing money is very useful. As is having insight into your money if you want to pursue certain goals. Do you know how much money you need to retire early or to actually make that world trip you’ve dreamed of? In this blog, you’ll find an overview of the most common savings goals and some best practices to reach them on a financial basis.

How much money do you ideally save each month? As a rule of thumb, Nibud, the Dutch organisation that helps families with their financial household, recommends putting aside at least 10 percent of your salary for your piggy bank*. So if you earn €2,500 net, you should set aside at least €250 per month. On an annual basis, you would end up with €3,000. That is still not a very large sum, but you can use it to pay for a washing machine, expensive repairs or to support yourself temporarily when you are out of work. Apart from the emergency fund, there are of course other savings goals you can pursue. For example, you can set up a savings account for your children or for your future home. Let's look at some of these savings goals in more detail below.

How much should I save for my child(eren) ?
When a child is born, most parents open a savings account for their newborn on which they regularly deposit money. How much that amount should be is up to each parent. But of course, the amount should not be more than you can afford to spend each month.

It is therefore important to assess your financial situation properly. Now, how do you do that?

● Compare your expenses with your income

● How much of the remaining amount can/would you set aside each month?

● What is your savings goal?

● Are you also saving for retirement?

● Are there any other savings opportunities?

How much you have left over each month determines how much you can save for your child(ren). Now, what is the best way to fill this piggy bank?

1. At birth
Many people open a savings account even before their baby is born. That way, they start saving for their child's future right from the start. A savings book, such as our savings accounts, remains an interesting way to save for your child, grandchild, partner or godchild as it is an accessible and safe way of saving.

2. Start investing
Would you like to increase the return on your savings and do you have a sum of money that you do not immediately need? Then investing is a good option. It is best to start as soon as possible, as investing is often a long-term story if you want to maximise your return. At Aion Bank, you do not have to be an expert to start investing. You fill in a short questionnaire that reveals your risk profile and on that basis we offer you the portfolio that best suits your needs. We also take care of the active monitoring and proactive adjustments, so your investments always work hard for you without you having to worry about them.

3. Invest in real estate
If you are thinking about the long term, choose real estate! A student room or a house for your child is always a good investment. Real estate generally increases in value, and you will certainly not be disappointed if you choose the right property.

Once you have determined the savings pot for your child(ren), you can start thinking about the age at which they will receive it. You can hand over the saved amount/investment at a certain age. We see that this is often done between the 18th and 25th birthday of the child. But you can also hand over the amount when the children are planning a major purchase, such as buying a car or a house.

There are no fixed rules on how to best manage the savings of your child(ren). But what is certain is that thinking ahead is the best approach.

How much should you save for your own home ?
Having one's own contribution is obviously a requirement for being able to borrow for the purchase of a home. The minimum amount that you, as a buyer, should be able to put down is set at about 20% of the purchase price. For the remaining amount, 80%, you can go to your bank, but beware: each financial institution has its own conditions and determines its own minimum and maximum loan amount. Let us take a closer look at this 20/80 rule.

For example: you want to buy a house of € 350,000. This means that you should be able to get €70,000 from your savings. The remaining € 280,000 can then be borrowed from the bank. You should also take into account some extra costs, such as:

- Notary fees
- Registration fee
- Deed costs
- ...

The notary fees and registration fees in this particular case would amount to € 15,000**. In this calculation, the purchased home is the only home you own and it is bought in Flanders. The property is not located in a core city. No previous home has been purchased, so you can’t deduct the registration tax you paid on a previous home from the registration tax you must pay on a subsequent home.The actual purchase price of your home would therefore be at least € 375,500. And that's not including the fees and the notarial charges.

Of course, the 20/80 rule is not an iron law. There are still banks to be found that are prepared to lend 90% of the purchase price, and very exceptionally even the full amount. Of course, you have to keep the additional purchase costs in mind here, and there is also a good chance that the interest rate will be much higher, which will make the general additional costs skyrocket. This has to do with the financial confidence banks place in you. The greater the risk for their institution, the higher the interest rate will be. So it is still advisable to fill your savings pot as much as possible before taking out a loan.

The answer to the question of how much you should pay off is simple. Ideally, you should limit your instalments to a maximum of 1/3rd of your (joint) salary. That way you always have something in reserve in case of unforeseen and/or essential expenses.

What are the additional costs that come on top of the purchase price of a property ?
As mentioned above, there are additional costs when buying a house that you should keep in mind. We list them below:

1. Registration duties:
Registration duties must be paid for each purchase of residential property, regardless of the region in Belgium in which you buy. However, there is a difference in how much you have to pay per region. For example, in Brussels and Wallonia, you pay 12.5% registration duties and in Flanders, 6% if it is your only home or 10% if you already own a property. In Brussels, you can also check whether you are eligible for the so-called "abattement", which is a discount on the registration duties****. In Wallonia, a reduced rate of 6% can also be granted in specific cases***.

Please note that the situation in Flanders will change as of 1 January 2022. The Flemish government then wants to reduce the 6% for a first property to 3% in order to lower the purchase threshold, and at the same time increase the registration duties for a second property from 10 to 12%*****.

2. Notary fees and interet
The services of the notary and the bank interest on your loan must also be paid. These are also costs you cannot avoid when buying a property. The use of a notary is in fact obligatory in Belgium, the main reason being to protect the buyer. This way, everything is officially arranged and the buyer is protected.

As far as the bank interest on your loan is concerned, we recommend that you compare different loans with different banks in order to get the most advantageous interest rate. This way you can get the most out of your money.

3. Home insurance
Once you have completed all the previous steps, it is also necessary to take a home insurance. This will cover the value of your home and prevent any unpleasant surprises in case unexpected costs arise.

The general advice here is to inform yourself as well and as much as possible in advance when you decide to buy a home. So be sure to include all costs in advance so that you can better assess the financial burden/risks.

How much should you save if you want to retire early ?
Have you been thinking about a financially independent life? Then FIRE may not be entirely unknown to you. FIRE stands for Financial Independence Retire Early, which concretely means that you become financially independent so that you can retire early.

That sounds attractive, but how do you start?

The first step is to prepare yourself financially. At mypension.be you can already calculate what your income would be if you were to retire immediately. That way you immediately know what you would miss each month compared to your normal wage and can easily calculate how much you need to have saved to close that financial gap.

You will also need to think about how you are going to fill this gap. You will need quite a substantial savings pot to make ends meet on a monthly basis. Let's say you spend €2,000 a month and you'd like to stop working 5 years before your pensionable age. So (€2,000 x 12 months x 5 years) you'll need €120,000 to bridge the time until you retire.

In addition, try to think beyond just building up a savings account. You can also start investing in ETFs or take out an annuity to get that little extra. This way, you can save for later and also enjoy a tax benefit. You can then use the annuity payment until you receive your real pension.

Of course, there are several other elements that you should take into account when calculating how much money you will need:

● Life expectancy: you are 25 today and you expect to live until you are 90. In that case, you have to provide enough money to bridge 35 years.

● Buffer for when you retire: providing money until you retire is often not enough. You will also need a little something extra during your retirement, since your statutory pension will be a lot lower than the salary you are used to.

● Inflation: You should take inflation into account and the fact that life gets more and more expensive. Therefore we recommend adding 2% per year to the sum you expect to need.

Retiring early is not a given, but it is certainly not impossible. If you are smart, you can make the financial bridge to your statutory retirement age without having to worry.

How much should you save for retirement ?
The past few months, there has been a lot of commotion around the payment of pensions, which has left many people doubting whether the government will be able to continue to pay the statutory pensions. To be sure, it is wise to build up some capital yourself during your career years. But how do you do this and how much?

Let's start by looking at how much your pension will be. The statutory pension of an employee with an average salary amounts to about half of the last earned salary. Suppose your last earned salary is € 3,000. Then your statutory pension will be around € 1,550. However, do you want to spend the full amount every month as you normally do? Then you will need to withdraw € 1,450 from your savings account every month. In this account your savings must amount to € 348,000 if you want to retire at 65 and live until you are 85.

It is certainly important to think about the future. But how do you start?

1. Start with a pension savings plan
Pension savings is a type of long-term savings that allows you to build up a supplementary pension on top of the statutory pension. On top of that, it is attractive because you get a tax benefit on it. Pension savings can be made with most banks as well as insurance companies and often provide a good return due to the principle of compound interest. This means that the income on your savings yields a return.

2. Think beyond pension saving
Pension saving is recommended to top up your reserve for later. But pension saving alone is not enough. Assuming you've been saving for retirement for the past 30 years, you'll have built up an average of €60,000. That helps, but it's not enough to provide you with a quality life.

3. Group insurance or second pillar
Many people build up a supplementary pension through group insurance with their employer. Go to mypension.be to see the capital you can expect to receive through this second pillar. Some parents often give this capital to their children as a gift when they buy a house, for example. Do you want to give your children an extra? Then it is best to invest in other savings and investment options. This way, you can keep the capital of your group insurance for your retirement.

4. Make use of extra savings products
According to our latest survey in which 1,000 Belgians over 40 were questioned, they are insufficiently informed about other savings and investment options available to them. Only one in three Belgians invests in shares, ETFs, bonds, funds or other financial products******. However, there are many advantages to investing without a tax advantage. For instance, the money is available at any time and you can adjust your portfolio yourself, depending on your age. Many people who are closer to retirement age choose to run less financial risk.

5. Make sure your home is age-friendly
The majority of Belgians own a home. As owners do not have to pay rent, their home is often seen as a fourth pillar for retirement. But what is often forgotten is that this home needs to be adapted in order to continue living there in later life. And this involves costs.

In addition, the climate challenges in Flanders should not be forgotten. For example, by 2050 all 3 million homes in Flanders should be energy efficient. At the moment, only 4.6% of homes in Flanders meet this target*******. So it is better to do these costs early, so that they do not have to be taken out of your savings at a later age.

How much you need to save each month for retirement depends on the salary you expect to end up with. So make the calculation early and save where possible.

How much should you save to travel the world ?
Are you thinking about exploring distant places for a long time? We will not stop you! But we do recommend making an estimation of the costs beforehand. A trip around the world costs on average between € 15,000 and € 20,000. Much depends on how long you are away for, what type of traveller you are and which continents you visit.

When you go on a world trip, you don't only have to take into account transport and accommodation costs. There are also preliminary costs that you should not lose sight of. There are flight tickets to be paid for, but also vaccinations, medication, travel equipment and travel insurance need to be taken into account. And don't forget any necessary visas and the correct currency of the country.

Aion Bank can help you with the latter. Your Aion Bank membership allows you to simplify your finances thanks to our multi-currency accounts and instant debit cards. There are no fees for withdrawing money from ATMs and the interbank exchange rates also apply. With our multi-currency accounts you can save up to €1.50 for every €100 you transfer in foreign currency. This way you can reduce your costs.

The vaccinations you need are also pricey. But they are worth it if you can avoid the risk of serious illness. Moreover, for many destinations they are not a choice but an obligation. You will find an overview of the costs below. On the other hand, you are protected against some diseases for decades or even for life. So you do not have to repeat them every so often if another far-away trip is on your bucket list.

● Vaccination booklet: € 5.95

● Malaria pills: € 30.00

● 1 shot of DTP: € 29.50

● 1 yellow fever shot: € 51.50

● 2 pricks Hepatitis A: € 120.00

● 3 pricks Hepatitis B: € 130.50

● 3 Rabies vaccinations: € 93.00

In addition to vaccinations, you will need a number of basic items to travel comfortably. It is important to buy a good backpack, but also good walking shoes and world plugs should not be missing when you travel.

Furthermore, you should definitely book your first plane ticket in advance. The price depends on where you want to start your world trip. Do you want to start in New Zealand? Then it will easily cost you double compared to a starting point in Asia. Think carefully about where you want to start your journey and consult sites like Skyscanner or Momondo. This way, you will find the cheapest tickets.

To be able to make a trip around the world, you may also need a visa. For example, you cannot enter America, Cuba, Russia, Vietnam or Australia without one. The price of a visa varies from country to country and you often pay more if you stay longer than 30 or 90 days. The website of the Flemish government provides more information and explanations. Be sure to inform yourself in time, because in some cases/periods this can take up to several months administratively speaking.

Once you arrive at your destination, you will of course have to pay for your accommodation, food, excursions, activities and local transport. It is strongly recommended to plan a daily budget where everything is already calculated. Kilroy suggests the following budgets, for the following locations:

● Asia - €1,000 per month - about €33 per day

● Australia - € 2,000 per month - about € 65 per day

● New Zealand - €2,000 per month - about €65 per day

● North America - €2,000 per month - about €65 per day

● South America - €1,400 per month - about €45 per day

● Africa - €1,400 per month - about €45 per day

Finally, you should not lose sight of travel insurance. During or after your trip, situations can arise that you might not have foreseen beforehand. You may fall ill, break an arm or perhaps be robbed at the airport. Whatever the situation may be before, during or after your holiday, you can protect yourself against such events by taking out travel insurance.

If you do the calculations above, you might end up spending around €15,000 to €20,000. However, we also recommend that you budget well, as you can never fully predict how your trip will turn out. There will always be some additional costs, and it is nice to have some money left once you are back home.

Would you like some more information on these topics? We are happy to put our expertise at your service. From holiday plans to the more practical, day-to-day matters; with Aion Bank in your pocket, you can be guided towards your goals whenever and wherever you want.

Sources

* Tien procent van je inkomen sparen. Retrieved December 28, 2021, https://www.nibud.nl/consumenten/maandelijks-10-procent-sparen/

** Berekening van de aankoopkosten. (2021). Retrieved December 28, 2021, https://www.notaris.be/rekenmodules.

*** Wijzigingen verkooprecht vanaf januari 2022. (2021). Retrieved December 28, 2021, https://www.vlaanderen.be/uw-overheid/werking-en-structuur/hoe-werkt-de-vlaamse-overheid/belastingen-en-begroting/vlaamse-belastingen/registratiebelasting/wijzigingen-verkooprecht-vanaf-1-januari-2022

**** Abattement. (2021). Retrieved December 28, 2021, https://fiscaliteit.brussels/nl/woonbonus-en-abattementen

***** Registratierechten Waals Gewest. (2021). Retrieved December 28, 2021, https://financien.belgium.be/nl/faq/registratierechten-waals-gewest#q1

****** Sparen en consumeren Belgen anders na hun 35ste? (2021). Retrieved December 28, 2021, https://aion.eu/be-nl/insights/belgen-sparen.

******* De energiedoelstellingen tegen 2050 voor de Vlaamse woningen. (2021). Retrieved December 28, 2021, https://www.energiesparen.be/energiedoelstellingen-tegen-2050.