How Much Should I Save Each Month?

Building financial security for you and your family means setting aside money for a rainy day, but that’s not to say saving money is an easy task. Between your expenses, credit card debt and other types of financial obligations, your paycheck may be feeling pretty stretched.

Regardless, you really shouldn’t put off saving because your life goals may be out of reach without it. Let’s explore the specific reasons you’ll want to save money and help you answer the question: “How much should I save each month?”

Why Do You Need To Save Money?

As hinted earlier, saving money has to do with helping you reach your life goals. It can feel amazing to know you’re a good steward of your money, but that’s not the ultimate goal. The ultimate goal is for you to be able to use your savings to help you achieve milestones or to use when there’s an unexpected circumstance where you need cash right away.

For example, let’s say you and your spouse are finally ready to settle down and start a family of your own. Your tiny condo doesn’t have enough space for more than two people plus your current pets, so you decide to start looking for a house.

As you’ve probably guessed, you’ll need savings to be able to do that. You’ll need to have money set aside for closing costs, a down payment and moving expenses. Along with that, to start a family, you’ll need savings for all the gear you’ll need once the baby arrives as well as for possible medical costs.

How Much To Put Into Savings Each Month

First, figure out how much of your paycheck you should save because it depends on your specific goals. Think about the timeline of your money goals and go from there.

For example, there are short- and long-term goals. Short-term savings goals are for anything from less than a year to a few years into the future. Examples include replacing your stove, a vacation to Cancun or saving for a down payment on a house. Long-term goals are things you’re looking at more than 5 years down the line, like retirement.

For these financial goals you’ll want to think about the specific dollar amount and work backwards to see how much you can realistically set aside each month. For example, let’s say you want to have $20,000 for a down payment, $5,000 for a vacation to Cancun and $1,000 for a new stove in the next 5 years. You’ll need to save $5,200 in a year, or $100 every week.

If you’re still confused, don’t worry. We’ll cover some common savings plans below.

Something else that’s equally important is setting aside money for an emergency fund. This is a specific amount of money earmarked for unforeseen circumstances like when your car breaks down, your HVAC needs repairs or you need emergency dental surgery.

Most experts recommend that you build your emergency fund to the point where you can cover at least 3 – 9 months of living expenses. It sounds daunting, so don’t feel like you have to do this all at once. Even $25 a week is good enough. Take a look at what you can eliminate from your budget (like your cable TV package) or pack your lunch a few times a week. Both of these options (and others) can make a big difference. 

Savings Plans

Using the above guidelines to calculate an emergency fund and savings goals can be useful. For extra help (especially if you’re still wondering how much you need to save per paycheck) here are two rules commonly touted by financial experts to help you save.

The 50/30/20 Rule

The 50/30/20 rule suggests you set aside 50% of your income to go toward essentials like housing, food and transportation, 30% for discretionary expenses and 20% for savings.

Take this rule and calculate what you should be saving according to your income. Then take a look at your above goals and see if it matches. If it doesn’t, try to see if you can make it match. If your savings goals are above 20%? That’s great news!

The 10% Rule

This rule typically applies to retirement savings. Conventional wisdom says you should save at least 10% towards retirement. This percentage can sound scary at first, but consider your employer when it comes to this amount. That’s because your employer may offer a 401(k) and will match part of your contributions (i.e., free money). That can bump you up to a 10% savings rate. If not, work on increasing your savings little by little until you eventually reach that amount.

How To Increase Your Savings

Boosting your savings doesn’t have to be hard or painful. Here are a few suggestions on how you can get started:

Take advantage of automation. Start small with an automatic savings plan by transferring money from your checking account to a savings account or an IRA regularly. Consider asking your human resources department to deposit a part of your paycheck into your savings account and then put the rest into your checking account. You could also use an app like Rocket Money^SM to automatically start saving little by little without needing to think about it.

Use your bonuses and tax refunds. If you’re lucky enough to get bonuses at work, consider putting that towards your savings. Or if you happen to get a tax refund one year, you can use that towards your savings as well.

Increase savings 1% at a time. Setting aside an extra 1% of your income toward savings will likely not make a big difference in your spending habits. Once you’re used to not having that amount of money, increase your savings by another 1% and so forth.

Start a side hustle. If you find your monthly income just isn’t enough, consider a side hustle to earn a bit of extra cash. Many don’t even require you to leave your home and with most you can work around your busy schedule.

The Bottom Line: How Much To Save Each Month Depends On Your Savings Goals

It doesn’t matter how small your savings are today, the important thing is that you’re taking proactive steps toward a savings goal. No matter how much you save, be consistent in your efforts. You’ll be pleasantly surprised at how much you can set aside even with small dollar amounts regularly over time.