Saving a percentage of your income each month is the foundation of personal finance. But just how much should you save each month? It all depends on where you want go…
How much money should I save a month?
I recommend everyone try to save at least 20 percent of your monthly take home pay.
Ultimately, how much you should save is deeply personal and depends on factors like debt payments, life events and, of course, how much you earn.
After more than 20 years as a personal finance writer and talking to thousands of readers, I know the reality is that some people save a lot more than 20% of their income and there are many who save nothing. But I believe 20% is a fair, achievable saving goal for the vast majority.
Why you need to save at least 20% of your income
Here are a few facts that I think illustrate why a healthy saving rate is so important:
- Inflation raises the cost of living faster than most of can increase our income
- Most of us will not be able to (or want to) work forever
- We all face financial uncertainty: Job loss, injury, or other unexpected expenses
- More savings reduces your dependence on debt
Without savings, you will always be living paycheck-to-paycheck. In the meantime, housing, gas, health insurance, and everything else, will get more expensive every year.
If your car breaks down or you lose your job, you will need to turn to credit cards or loans to afford necessities. At an average credit card interest rate of 25%, you’ll pay $250 a year in interest for every $1,000 in credit card debt.
Without savings, you just fall further and further behind.
Why saving 20% may not be enough
To really get ahead, you’ll need to save between 30 and 50% of your income.
At a 20% savings rate, it will take you two years to fully fund a six-month emergency fund. (We recommend an emergency fund equal to 6 months’ of living expenses). That’s not terrible, but you’ll likely have other savings goals along the way.
As of June 2023, the median home price in the United States was $431,000 according to the Federal Reserve. That means a 20% down payment on a conventional mortgage for a median priced home is $86,200.
Next up, the average selling price for new cars is over $48,000! (Of course, you can and should buy used). Nevertheless, purchasing a car is as expensive as ever.
Finally, there’s retirement. Simply put, you can never save enough for retirement. And, the more you save, the sooner you can theoretically retire.
Calculate how much you need to save each month
Let’s get a bit more personal to help you answer “how much of my paycheck should I save?”
Estimate your expenses and income
Before you can calculate how much to save each paycheck, it’s important to estimate your expenses and income. (In other words, to create a budget.)
Start by making a list of all your fixed expenses such as rent or mortgage payments, car payments, insurance premiums, loan payments, etc.
Then add up the total amount of these fixed costs.
Next make a list of variable expenses like groceries, entertainment, gas for your car and other miscellaneous items that may vary from month to month.
Once you have an idea of what your monthly expenses are likely to be you can begin estimating your income.
Consider any wages or salary from employment as well as any additional sources of income such as investments or rental properties.
Determine your financial goals
After estimating both your income and expenses it’s time to determine which financial goals are most important for you at this stage in life.
Are there short-term goals like saving for a vacation? Or long-term goals like buying a house?
Make sure that the goal is realistic given both current resources (income) and obligations (expenses).
Also consider emergency funds – having money set aside in case something unexpected happens will help provide peace of mind during difficult times.
Now that you know how much money comes in each month versus how much goes out each month, it’s time to figure out how much should be saved with each paycheck.
Subtract all estimated monthly bills from total estimated monthly income and divide by the number of paychecks received per month – this is the amount available for savings after paying bills every month.
From here, decide on an appropriate percentage based on personal preferences; 20% is often recommended but if possible try increasing this number over time until reaching your desired savings rate while still maintaining necessary spending levels throughout the year.
Saving money from each paycheck can help you reach your financial goals and give you peace of mind. By following the steps outlined above, you will be able to determine how much of your paycheck should be saved each month.
Next, we’ll discuss strategies for saving money from your paycheck.
Below are some of the best strategies to start saving early and often. Personally, I’ve found that by improving your saving rate, you’ll likely be able to start saving more than you’d even imagined you could.
Automate your savings
Automating your savings plan with direct deposit or automatic transfers is one of the most effective strategies for saving money from your paycheck.
Direct deposits allow you to have a portion of each paycheck deposited directly into a savings account, so that you don’t even have to think about it.
Automatic transfers can also be set up between accounts, allowing you to transfer funds on a regular basis without having to remember to do it manually.
Capitalize on retirement savings
Utilizing employer match programs through your employer-sponsored retirement account (when available) is another great way to save money from your paycheck.
Many employers offer matching contributions for retirement accounts such as 401(k)s and 403(b)s, which means they will match any contribution you make up to a certain percentage of your salary.
This can be an easy way to double the amount of money saved in your retirement savings from each paycheck.
Use a separate account for each goal
Finally, consider opening multiple accounts for different goals if possible. Having separate accounts for short-term and long-term goals can help keep track of progress more easily and ensure that all goals are being met in time.
For example, setting up an emergency fund account specifically designated for unexpected expenses like car repairs or medical bills can provide peace of mind knowing there is always something set aside just in case something arises unexpectedly.
By utilizing these strategies, you can create a plan to save money from your paycheck and begin building financial security. Next, let’s look at how to make the most of your savings plan.
Where to put your savings
Savings accounts are an essential tool for saving money from your paycheck. They provide a safe place to store your funds and can help you reach saving goals faster. There are several types of savings accounts available, each with its own benefits and drawbacks.
Types of savings accounts
Here are the most common:
- Traditional bank account – these accounts typically offer low interest rates but have no minimum balance requirements or fees associated with them.
- Money market account – similar to traditional bank accounts but often offer higher interest rates in exchange for maintaining a higher minimum balance.
- High-yield savings account – also like a traditional savings, only with a higher APR and (usually) stricter rules and deposit requirements.
- Certificate of deposit (CD) accounts – require a minimum balance, but they come with fixed terms and usually pay higher interest rates than other types of savings accounts.
Savings account benefits
Having a savings account offers many advantages over keeping cash on hand or investing without one.
For starters, it is much safer since banks insure deposits up to $250,000 per depositor at FDIC member institutions.
So if something happens to the bank where you keep your money, you won’t lose any funds as long as it is within that limit (and even more if multiple family members have separate insured amounts).
Additionally, having a dedicated place for saving helps ensure that those funds aren’t spent elsewhere. Once deposited into the account they are not easily accessible unless needed in an emergency situation like job loss or medical bills.
Having an emergency fund makes it easier to stay on track towards reaching longer-term financial goals such as retirement planning or buying property down the road.
How to open a savings account
Opening a new savings account is relatively easy and can be done online in just minutes depending on which institution you choose and what information is required by them during the application process (e.g., Social Security number).
Most banks will require some form of identification such as driver’s license before allowing customers access their services, so make sure this information is readily available when applying for an account online or at branch locations near you.
Once approved, simply link up your existing checking/debit card details so transfers between both can be made quickly and securely, making managing finances simpler and more efficient overall.
Saving money is an important part of financial planning and having a savings account can help you do just that. Knowing the different types of accounts available, their benefits, and how to open one are all essential steps in making smart money decisions.
Now let’s look at how to calculate how much of your paycheck should be saved each time.
Making the most of your saving plan
Investing in low-risk options for long-term growth is a great way to make the most of your savings plan. Low-risk investments, such as certificates of deposit (CDs) and money market accounts, are safe places to store your money while earning interest over time.
When choosing an investment option, be sure to research the terms and conditions carefully so you understand how much risk you’re taking on and what kind of return you can expect.
Taking advantage of tax benefits when possible is another key part of making the most out of your savings plan. Tax-advantaged retirement accounts like 401(k)s or IRAs offer significant tax breaks that can help grow your nest egg faster than traditional investments alone.
Be sure to check with a financial advisor or accountant before investing in any type of retirement account so you know exactly what types of deductions are available and how they will affect your overall financial picture.
Finally, monitoring progress regularly is essential for staying on track with your savings goals. Reviewing statements from all bank accounts at least once per month will give you insight into where money is going each month and whether or not it’s being used wisely.
Additionally, setting up automatic transfers between different accounts can help ensure that funds are allocated properly without having to manually transfer them every time there’s a change in income or expenses.
With regular review and adjustments along the way, it’ll be easier to stay focused on reaching those long-term goals.
‘How much should i save each month?’ FAQ
Is it good to save 50% paycheck?
It is generally recommended to save a portion of your paycheck, but the exact percentage will depend on your individual financial situation. Saving 50% of your paycheck may be too much for some people, as it could limit their ability to pay for essential expenses and enjoy life. It’s important to consider both short-term and long-term goals when deciding how much money you should save each month. If you can afford it, saving 50% of your paycheck can help you reach financial stability in the future. However, if that isn’t feasible right now, start by setting aside 10-20%, then gradually increase the amount over time until you reach a comfortable level of savings.
How much of a $1,000 paycheck should I save?
It is important to save as much of your paycheck as you can. A good rule of thumb is to aim for saving at least 10-15% of your income each month. This will help you build a solid financial foundation and give you the ability to reach long-term goals such as retirement or purchasing a home. If you are able to save more than 15%, that’s even better. You should also consider setting aside money for an emergency fund in case unexpected expenses arise. By making smart money decisions now, you’ll be well on your way towards achieving financial success later in life.
How much should a 30 year old have saved?
It is difficult to give a definitive answer as to how much a 30 year old should have saved, as this depends on many factors such as income, expenses, and lifestyle. Generally speaking, financial experts recommend having an emergency fund of at least 3-6 months’ worth of living expenses saved up by the time you reach 30. Additionally, it is recommended that you save 10-15% of your income for retirement. Finally, if possible try to pay off any high interest debt such as credit cards or student loans before investing in other savings goals.
Is saving $1,500 a month good?
Saving $1,500 a month is an excellent goal to have. It can help you build up your savings and put you in a better financial position for the future. Having this amount of money saved each month can give you more flexibility when it comes to making decisions about spending or investing. It’s also important to remember that saving isn’t just about having money set aside; it’s also about building good habits and learning how to manage your finances responsibly. Saving $1,500 a month is definitely a great start. Managing your money with proper budgeting can help.
In conclusion, understanding how much of your paycheck should you save is an important part of personal finance. It’s essential to budgeting basics and creating a savings plan that works for you.
With the right strategies in place, it’s possible to make the most out of your paychecks and build up a secure financial future.
Remember, there isn’t one “right answer” when it comes to deciding how much of your paycheck should you save – but with careful planning and dedication, you can find the best solution for yourself.