How Much Should You Save Every Month?

How Much Should You Save Every Month?

How Much Should You Save Every Month?
Reading Time: 8 minutes

Setting aside part of every paycheck can provide peace of mind. But how much should you save? The quick answer is: as much as you can afford.

The right amount to set aside depends on your financial goals, current income, and lifestyle. Let’s take a look at some guidelines that can help you figure it out.

What Percentage of Your Salary Should You Save Each Month?

What works for someone else may not work for you. For instance, you may find that your lifestyle doesn’t enable you to save more than 7 percent of your income, lower than what is usually recommended. You do what you can. The important thing is to have a habit of saving.

To establish this habit, it helps to have a rule to guide you. One effective rule of thumb is that, dividing your income into a few major categories, you should allocate 20 percent of your take-home pay to the savings category.

There’s a big exception to this rule, though. If you’re carrying credit card debt with a high interest rate, you should focus instead on paying off the debt, which will help you save more money in the long run. After paying off the high-interest debt, you can then funnel a full 20 percent of your income to savings.

To determine the right percentage of income to deposit in a savings account, consider, first, what you are you saving for. Instead of regarding your savings as a lump sum that just sits in a bank account, it may help to keep specific objectives in mind.

You may want to save for a wedding, a home, a rainy-day fund, your golden years after you retire. Each goal requires a specific amount of money that you need in order to achieve it, and knowing this will help you decide how much of your income to save each month.

If you’re looking at the 20 percent threshold and thinking, “this is impossible,” don’t tense up just yet. Almost any amount of money you can regularly put toward savings will make a difference. It’s never too late to start saving. What matters is that you create a savings plan that is consistent with your financial profile and that you can maintain month after month.

The 50/30/20 Model

If you don’t have much time to spend detailing your finances, the 50/30/20 model is a useful rough-and-ready guide. The idea is to spend:

  • 50 percent of your income on essential needs. Unavoidable expenses like bills, food, rent or mortgage, and transportation to work.
  • 30 percent on wants. Discretionary spending on things like eating out, subscriptions, and recreational trips.
  • 20 percent on saving. Paying off debt or depositing money in a savings account, pension fund, or investment account.

If your own situation doesn’t permit you to follow the 50/30/20 model, that’s fine. Do what you can. Even small but regular changes can make a huge difference in the long run. But the 50/30/20 model or something like it will give you a good goal to aim for. Allocating a large part of your income for savings or paying debt will also help you feel more in control of your life.

Start by looking at the amount of money you have coming in on a regular basis. If your income changes from month to month, take the average of the last three months. It may also help to categorize your expenses so that you have a better idea of the kinds of things you may be spending too much on.

Your financial goals will generally fall into two categories: short-term and long-term.

Short-Term Financial Goals

Short-term goals pertain to your more immediate expenses, typically those coming up in less than a year. Financial planning helps you accomplish even such short-term goals. Here are a few that you should be saving for.


One of the most important short-term goals is an emergency savings fund. Life is unpredictable. Your child may need medical attention that results in a hefty bill. Your car may break down and require repairs. You need to set money aside to cover any unexpected expenses that come up, so that you can handle them without resorting to borrowing money from friends or taking out a loan.

Using an emergency fund should be a last resort.

  • Set some money aside in a dedicated account, preferably one that will gain interest.
  • When you are confronted by a serious emergency expense, draw from your dedicated account to pay for it.
  • Replenish the account as soon as possible so that you’re cushioned against future emergencies.

The amount you set aside for emergencies depends on your lifestyle, income, and monthly expenses. But a good rule of thumb is to have enough money available to cover three to six months of your living expenses.

An emergency fund can provide a financial cushion when unexpected expenses like the following occur:

  • Medical costs. Even if you have health insurance, you may take a huge hit from an unexpected hospital bill. Drawing from your emergency fund can help you deal with the surprise without suffering additional stress.
  • A job loss. If you’re suddenly laid off, an emergency fund will help you cover your bills until you find a new one.
  • Car repairs. The car that gets you to work every day could break down when you least expect it. An emergency fund will help you take care of the repairs and get back behind the wheel as soon as possible.
  • Home repairs. If worse comes to worst, an untended problem with your home may render it uninhabitable. An emergency fund enables you to fix the problem before that happens.

Use an emergency fund only for expenses that are truly urgent, unexpected, and necessary. Never withdraw money from the fund to buy gifts, pay for a vacation, or lend someone money. You can save for emergencies with a high-yield savings account.

A Big Purchase

Saving for a large purchase may require a large change in lifestyle. But if you have the resources available to plan and save for the purchase, here are some tips on how to do it.

  • Open a separate savings account. If you’re eyeing a big purchase, open a separate short-term savings account earmarked for this goal. There are many savings account options to choose from. Although the yield is important, your account should also provide a means of tracking your progress toward your goal.
  • Daily direct deposits. Planning for a large purchase doesn’t mean that you must confine yourself to large deposits. Start by depositing small amounts every day. Do it without fail. Even better: automate deposits to a savings or investment account so that you’re always saving whether you think about it or not.

Even if you have a short timeline to make a big purchase, financial planning can help you do it. Track your expenses by logging everything that you spend during a month while also placing expenditures in categories so you can better identify areas where you’re overspending. If you’re carrying a huge amount of debt, focus on paying it down, starting with debt what has the highest interest rate.

There’s no one-size-fits-all approach to saving for short-term financial goals. Create your plan in light of your own circumstances—and then stick to it.

Long-Term Financial Goals

Long-term financial goals often take at least 10 years to achieve. These include investment and retirement goals.


Several factors affect what assets you should invest in, including:

  • Your time horizon for investing.
  • Your age.
  • How much risk you can tolerate.
  • How hands-on or hands-off you’d like to be.
  • How much you’re comfortable investing.

Mutual funds and exchange-traded funds (ETFs) provide a simple approach to investing, since they include a diversified selection of bonds and stocks. You may also wish to trade individual stocks that can yield higher returns.

When evaluating mutual funds, stocks, and ETFs, consider the risk profile and past performance of each. Consider the expense ratios of ETFs and mutual funds to understand how much it will cost to own a particular fund every year. You can also choose between actively and passively managed funds.


If you ask financial advisors when you should start saving for retirement, their standard answer is “Now.” And they’re right. Investing for your retirement is like storing a fine wine. Your investments can substantially improve with age.

If you’re still in your 20s or 30s, it may be difficult to save for retirement. Do what you can. Start by considering your needs, goals, and ability to save.

  • What is your target retirement date? Do you plan to stop working when you are 65 or will you keep going?
  • What kind of lifestyle do you want after you retire?
  • Do you expect your living expenses to be lower or higher than they are today?

When you have your answers, use a retirement calculator to help determine how much you need to save given your current age, what you have already saved, and other factors.

Once you have an idea of how much you should be saving, open a retirement account. A savings account isn’t the most lucrative place to put money aside for retirement. But there are better options:

  • 401(k). A 401(k) is an employer-sponsored retirement plan through which you, the employee, contribute regularly to your retirement savings with pre-tax dollars. Sometimes an employer will match your contributions to a certain extent.
  • IRA. If you’re not part of any employer-sponsored plan, you can open an individual retirement account on your own. An IRA provides more investment options than a 401(k) and enables you to choose institutions and funds with relatively low fees. You can start with a traditional IRA that lets you set aside up to $6,000 a year in pre-tax dollars; you pay taxes on the money only when you withdraw it during your retirement years. You can also open a Roth IRA, which lets you contribute up to $6,000 per year in post-tax dollars. Contributions to a Roth IRA generally have no tax advantages. But you won’t pay any taxes on the money that you withdraw after you retire.

Get Started with a Budget

Staying financially healthy requires effort: making a budget. Doing so may be tough, but the rewards can be tremendous. Budgeting your money helps you prioritize your spending and steadily work toward your financial goals, whether that goal is a bigger savings cushion or a bigger house.

1. Gather all of your financial information.

Gather all relevant documents showing your take-home income and monthly expenses. Merely estimating your costs may work in a pinch, but your budget will be more accurate if you use actual numbers.

2. Determine your monthly income.

Although you may be able to determine your gross annual income in seconds if you’re on a fixed salary, making an accurate budget requires you to deal with the dirty details. Look at your pay stub to see how much is being deducted for federal, state, and local taxes; car insurance; retirement savings; and anything else. It’s important to use your actual monthly take-home pay to prepare a budget. If you refer only to your annual income, you may get the idea you have more money coming in each month than you really do.

3. Tally your expenses.

After determining how much money is coming in, add up your spending. Things you need to account for include rent, mortgage payments, phone and utility bills, food, movies, and other discretionary expenses. Subtract your total monthly expenses from your take-home pay.

4. Write down your savings goals and priorities.

Now that you know how much money is coming in and how much is going, create a monthly savings goal. Consider both your short-term and long-term financial goals so that you can establish priorities for each.

5. Do the math.

With all your financial data at hand, it’s time to crunch the numbers and craft a budget to help you accomplish your goals. You can use a spreadsheet with columns for your monthly income and monthly expenses. Do the math. If you get a positive balance, you’re living within your means. If you get a negative balance, it’s time to look at what you can cut from your spending to make up the deficit.

6. Stick to your budget.

Now that you have a budget in place, all you have to do is follow it.

The Bottom Line

Consistency is key to a successful savings plan. And consistency means discipline. It’s easy to let yourself off the hook for one paycheck, then another, and another, and to keep doing that month after month; you need to be able to say No to yourself. Yet flexibility is also important. What seems smart and doable today may seem like counterproductive torture 12 months from now. Or perhaps your income will increase and you decide that you can sock away much more.

Life changes. Loosen and tighten your budget as necessary, including how much you save. Track your expenses regularly to gauge how well or poorly you’re doing, and act promptly to make any changes you to make.


Money-Saving Resources

Saving Tips for American Seniors on a Fixed Budget
The $1,000-a-Month Retirement Savings Rule of Thumb
How to Uncover Unclaimed Money That May Belong to You
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