How Much Should I Save Each Month?

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Is there a rule somewhere that tells you how much money you should save every month? There’s no such rule but you’re sure to get a common answer to that question.

Many folks would advise that you save a minimum of 15% to 20% of your income.

From that amount, they say you should allocate around 10% to 15% to your retirement accounts. The rest should go to a combination of an emergency fund, other long-term savings, and payment for some debts.

It’s a piece of good advice to follow but it’s not cast in stone. If you’re looking for more insights on the matter, keep on reading.

How much do you need to save?

Saving shouldn’t be something that you do in case you have some extra money. If that is your strategy, you’ll probably notice that there won’t be much left every payday.

The truth is, most people spend every penny they earn – and there are those who spend more than what they make.

It’s a good discipline to save money first out of your income whether it’s 5%, 10%, or 20%. Try to save as much as you can and after that, you can spend all the left-over money.



You’ll accomplish a lot of things if you do this. First, you can save more money. Second, even if you spend all the money that’s left, you won’t feel guilty. If you know that you’ve set aside 25% of your income for savings, you’ve accomplished something.

You can then not worry about spending every dime that’s left.

Here are the most common methods that you can use:

The 10 Percent Rule

Many financial advisors would recommend that you save at least 10 percent of your income. No harm in that and it’s a nice realistic figure.

One way to compute how much you should channel to your savings on a regular basis is by using the ‘bill method’. First, calculate your gross pay and net pay (the pay you get after all the deductions).

Because individuals fall into different income tax brackets and do not have identical contributions for employer plans, union dues, and other deductions, it’s difficult to find an exact net savings goal from each paycheck. What you can do is to treat your savings contribution like your other deductions or bills. Pay it first before everything else.

Calculate 10% of your gross pay (the amount you receive before they take off the tax and other deductions). Then, set up an automatic savings system with your bank using this figure.

So, for instance, if your gross pay is $1,800 every pay period, target $180 for savings.

This is your jump-off point for savings. If your income will allow you to save more, you will reach your goal a lot faster.

The 50/30/20 Rule

Harvard bankruptcy expert Elizabeth Warren came up with the “50/30/20” saving formula with her daughter when they were looking for a good method to save money. Many experts say that you should try to save 20% of your income every month.

According to this popular scheme, you should allocate 50% of your budget for essential expenses such as food and housing. Then, set aside 30% for discretionary spending and put the remaining 20% into savings.

The 20% will have to go to debt retirement and money for emergencies as well as into your retirement accounts.

Where should I focus my savings?

Although you have a free hand on how to rank your savings, experts recommend that you save first for emergencies and retirement. Then, you can move on to saving for education and major purchases.

Pay off debt. Budget like a boss. Reach your financial goals.

How to save for emergencies

If you have an emergency fund, you can cover unexpected expenses without sacrificing your other bills, using your credit card or taking out a new loan. These stop-gap measures tend to harm your financial health. This is why it’s important to have a financial net for yourself and make it a top priority.

What to do with high-interest debt

High-Interest debt is the termite of your financial home – it gnaws on your monetary assets day in and day out.

So, if you have it, make it your goal to pay it off. If you’ve not been saving for emergencies or retirement, start saving immediately. Set priorities to help you tackle issues that come without sacrificing the important for the lesser ones.

You could be in a situation where you have zero debt but also zero savings. It may be comfortable but it’s not ideal. Or maybe you have a lot of debts but also have a lot of money stashed away. That is also not what you want.

Saving for your retirement

Sooner or later, you would have to stop working. If you’re looking forward to a comfortable retirement, you should start saving for it as soon as possible. When you start early, you create a lot of room for your money to grow.

If you can’t meet the 20% target, save whatever you can. You may think that it’s small but that’s how it appears right now – over time, it will become substantial.

Try to at least match your employer’s contribution in case your company offers one. When you don’t, you’re throwing away free money. As your income grows or as you retire your debts, you should also level up the amount you save.

Remember that part of your 20% savings goal is money for your retirement. If your employer is putting money into your 401(k), that also counts for your retirement so you can adjust the money you put into savings.

If your employer doesn’t offer a retirement plan or if you want to start one outside of work, you can open an IRA. If you are self-employed, there are several solo 401(k) options available for you.

Saving for special purchases

When you’ve met your emergency savings goal and are making regular contributions to retirement savings, you can now set your eyes on your other goals.

It could be a down payment for a new home or buying a new car.

Your priority should be the one that would benefit your family the most. For example, if a car would allow you to take a higher-paying job elsewhere that would provide more take-home pay, then you can save for that first.

4 great ways to save more money

Saving money will take a lot of work but you won’t get anywhere if you aren’t putting money aside for your financial goals.

Here are some techniques that you can use to help build your nest egg. Keep in mind that it’s your determination to save that will help you first of all so, stick to your plan.

1. Pay yourself first

If you follow this principle, you could achieve a great deal in your savings journey.

This means that you identify a specific sum out of your paycheck to be your personal money. It’s money that is different from the money that will go to your family budget. Then, you give that money to yourself before paying your bills or someone else.

The amount is up to you – $20, $25, $50, $100 or a percentage of what you take home every payday.

2. Set your budget and stick to it

Now that you’ve finished the groundwork of careful study of your spending habits and patterns, it’s time to sit down and create a logical and practical budget.

It is important that you have a realistic estimate of your monthly spendable income after you’ve taken out the money for savings. This way, you can prepare a budget that would work – and not one that would cause frustration.

It is crucial that your budget be something that you can execute without difficulty. If it’s hard to follow, you may soon just give up and be back where you started from.

3. Open a savings account

A savings account for your savings fund is a good place for your money because it limits your access to the funds. By law, you can only make up to six withdrawals or transfer transactions every month for free. After that, your bank may charge you a fee or convert your savings account to a checking account.

4. Automate your savings

You may also consider automating your savings. Some employers will let you deposit your paycheck directly into more than one bank.

If you have that option, we suggest that you take it.

Ask your employer to put the 10% or 20% that you mean to save into a savings account and put the rest into your checking account.

Automatic savings will also program your mind to use whatever money is on your checking account since you won’t see or hold the portion that goes into saving.

Remember what we told you about paying yourself first? This technique is a time-tested scheme that has benefited a lot of people.

Baruch Silvermann is a personal finance expert, investor for more than 15 years, digital marketer and founder of The Smart Investor. But above all, he is passionate about teaching people how to manage their money and helping millions on their journey to a better financial future.

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