You likely already know it can be wise to save money every month. Whatever your income or age, putting money aside for the future can help you maintain financial stability and achieve your goals.
But how much of your paycheck should you save each month? Financial professionals often recommend putting at least 20% of your monthly take-home income into savings for future financial goals, such as buying a home and funding your retirement.
Exactly how much you should save each month, however, will depend on your income, current living expenses and financial obligations, as well as your goals.
Here are some guidelines to help you figure out how much of your income you may want to set aside each month, plus some simple ways to jump start (or build) your savings.
Key Points
• Financial advisors often suggest saving at least 20% of your monthly take-home income for future goals.
• A common budgeting technique is using the 50/30/20 rule: putting 50% of income toward essentials, 30% toward non-essentials, and 20% toward savings.
• One easy way to increase savings is to automate recurring transfers from checking to savings accounts.
• Funneling windfalls into savings and using roundups – a tool that autosaves the difference between a purchase price and the nearest dollar — can also boost savings.
• One of the most effective ways to save money is to determine your near-term and long-term financial goals and to track spending and progress in a budget.
Knowing What You’re Saving For
It can be difficult to know how much money you should save each month without having a sense of what you are saving for. Setting a few financial goals can also help motivate you to save, rather than spend all of your income.
There are some savings goals that can make sense for everyone. If you don’t already have at least three to six-months worth of living expenses stashed in an emergency fund, for example, that can be a good place to start. By this measure, many Americans don’t have enough emergency savings, according to SoFi’s April 2024 Banking survey of 500 U.S. adults.
| Amount in emergency savings | People who have saved that amount |
|---|---|
| Less than $500 | 45% |
| $500 to $1,000 | 16% |
| $1,000 to $5,000 | 19% |
| $5,000 to $10,000 | 9% |
| More $10,000 | 10% |
Source: SoFi’s April 2024 Banking Survey of 500 U.S. adults
Without a solid contingency fund, any financial set-back -– such as a job layoff, large medical bill, or costly home or car repair — can throw you off balance and cause you to rely on high interest credit cards.
Many people will also want to save for retirement. At the very least, savers may want to take advantage of company matches offered in their workplace retirement plan by contributing the maximum amount the company matches.
After emergency savings and retirement, goals may start to look different from person to person. One person may want to save up for a down payment on a home, another may want to save up to start a business, and yet another may be interested in college savings. Fifty-two percent of the respondents to SoFi’s survey said they are using their savings accounts to save for a specific goal.
|
Goals People Save For in a Savings Account | |
|---|---|
| Short-term and long-term goals | 40% |
| Short-term goals like a vacation or holiday spending | 35% |
| Long-term goals like a child’s college education or a house | 26% |
Source: SoFi’s April 2024 Banking Survey of 500 U.S. adults
How Much to Save Each Month
A rule of thumb that is sometimes used in personal financial planning is a spending/saving breakdown of 50/30/20. Using this guideline, you would spend 50% of your take-home income on essentials (including minimum payments towards debts), 30% on nonessential (or “fun”) spending, and 20% on savings goals, including debt payments beyond the minimum.
To use the 50/30/20 method to determine how much you should save, you can simply calculate 20% of your monthly after-tax pay. For example, if you earn $3,000 each month after taxes, $600 would go towards savings or other short term financial goals.
You may want to keep in mind that your 20% savings goal can include the money you’re saving for retirement. You can determine how much you’re putting toward retirement each month by looking at your pay stub or electronic payment record. If your employer is automatically depositing money into your 401(k), you may be able to put less into savings each month.
While the 50/30/20 can be a helpful guideline, how much you should — and can afford — to save each month will ultimately depend on your individual circumstances, such as your current income, monthly expenses, and future goals.
If the cost of living is high in your area, for example, you may not be able to swing 20% savings each month.
On the other hand, if you make a significant amount more than you need to live on each month, you may want to put away more than 20%, especially if you’re working towards a large short-term savings goal, such as buying a home in the next couple of years.
Recommended: Cost of Living by State Comparison
Where Should You Put Your Savings?
The best account for building savings will depend on what you are saving for.
If you are saving up for retirement, for example, you’ll likely want to use a designated retirement account, like a 401(k) or IRA, since they allow you to contribute pre-tax dollars (which can help lower your annual tax bill).
You may want to keep in mind, however, that there are annual contribution limits to retirement funds.
For an emergency fund or other short-term savings goals (within three to five years), you may want to open a separate savings account, such as a high-yield savings account, money market account, or a checking and savings account. These savings vehicles typically offer more interest than a traditional savings account, yet allow you to easily access your money when you need it.
Easy Ways to Boost Savings
Below are some strategies that can help make it easier to start — and build — your monthly savings.
Automating Savings
One great way to make sure you stick to a money-saving plan is to automate the process. You may want to set up a recurring transfer from your checking into your savings account on the same day each month, perhaps the day after your paycheck clears. Even setting aside just a small amount of money each month now can, little by little, add up to a significant sum in the future.
Putting Spare Change to Work
There are apps that will automatically round-up any amount paid on a credit or debit card and then put that little bit of extra money into savings accounts or even invest it. This “pocket change” can add up over time.
Using Windfalls Wisely
If a lump sum of cash, such as a bonus or monetary gift, comes your way, you may want to consider funneling all or part of it right into savings.
Or, if you get a percentage raise on your salary, you might want to boost your automatic monthly transfer from your checking account to your savings account by the same percentage.
Reviewing Your Budget
If you feel like your budget is too tight to save anything at the end of the month, you may want to review your monthly and habitual expenses. You can do this by combing through your checking and credit card statements and receipts for the past few months. Or, you may want to actually track your spending for a month or two.
You can then come up with a list of spending categories and determine how much you are spending on average for each.
There are online tools that can help make this process easier — in fact, 23% of people use budgeting tools offered by their bank, SoFi’s survey found. And of the 20% of respondents who have used AI to help manage their finances, 31% have used automated budgeting suggestions.
Once you can see exactly where your money is going each month, you may find places where you can fairly easily cut back, such as getting rid of streaming subscriptions you rarely watch, quitting the gym and working out at home, or cooking more and getting take-out less often.
The Takeaway
The right amount to save each month will be unique to you and includes factors such as your financial goals, how much you earn, and how much you spend each month on essential expenses.
One of the most important keys to saving is consistency. No matter how much of your income you choose to set aside each month, depositing small amounts regularly can build to a large sum over time to achieve your goals.
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