How much money should I save each month?

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Saving money is essential for financial stability, but figuring out how much actually to save can be challenging. 

How much you should save depends on your goals, income, and expenses. These factors are often unique — so what works for someone else may not work for you.

Setting an accurate monthly savings target can help you reach your short-term and long-term financial goals, like building an emergency fund or saving for a down payment on a house. Here’s how you can calculate your ideal monthly savings amount.

How much should you save each month? 

While the specific amount you should save each month depends on your financial situation, a good starting point is the 50/30/20 rule. This guideline suggests allocating your after-tax income as follows:

• 50% towards needs (housing, food, transportation, insurance)
• 30% towards wants (dining out, entertainment, shopping)
• 20% towards savings and debt repayment

Using this rule, if your monthly after-tax income is $4,000, you would aim to save $800 per month (20% of $4,000).

However, remember that the 50/30/20 rule is just a general benchmark. Your ideal savings percentage may vary based on factors such as:

• Your age and proximity to retirement
• Your current debt obligations
• Your income level and job stability
• Your specific financial goals (e.g., buying a home, starting a business)

You should be able to comfortably meet your monthly savings target while still covering your expenses. Aim for at least 10-15% of your income, and gradually increase your savings over time. 

Why setting a monthly savings goal is important

Setting a monthly savings goal is important for several reasons. It can help you:

• Build an emergency fund: Unexpected expenses, like a medical bill or car repair, can derail your finances if you don't have a cushion to fall back on. According to a Red Ventures report, only 44% of Americans would pay for a $1,000 expense with savings, while 21% would resort to high-interest debt like credit cards. By consistently saving each month, you can build a financial buffer to protect you in times of need.
• Save for short- and long-term goals: Whether saving for a vacation, a down payment on a home, or retirement, setting a monthly savings goal helps you progress toward your objectives.
• Create a habit of consistent savings: Establishing a regular saving habit is crucial for long-term financial success. Setting a monthly savings goal and automating your contributions can make saving a part of your financial routine.

How to determine your monthly savings target 

To determine how much you should save each month, you'll need to consider several key factors.

Income and expenses

Start by assessing your monthly net income, the amount you take home after taxes and other deductions. Next, track and categorize your expenses to get a clear picture of where your money is going. Common expense categories include:

• Housing (rent or mortgage)
• Utilities
• Transportation
• Food (groceries and dining out)
• Insurance
• Healthcare
• Personal and discretionary spending
• Debt payments

Once you've reviewed your income and expenses, look for areas to cut back on and redirect those funds toward savings.

Financial goals

Your monthly savings target should also be based on your specific financial goals. These can be broken down into short-term and long-term objectives. Short-term goals (less than three years) might include:

• Building an emergency fund
• Saving for a vacation
• Purchasing a car
• Making a down payment on a home

Long-term goals (in four years or longer) could include:

• Saving for retirement
• Funding a child's education
• Starting a business
• Achieving financial independence

Prioritize your goals based on their importance and timeline, and quantify how much you'll need to save for each. This will help you determine how much you should set aside each month.

It can be tricky to know exactly how much to save. For instance, it’s easier to know how much to save for a specific item versus a broader goal like retirement. However, by prioritizing the importance of each goal, you can decide how much to allocate to each.

Age and life stage

Your age plays a role in determining your monthly savings target, particularly regarding retirement savings.

In your 20s, retirement may seem like a distant concern. But starting early gives your money more time to grow through the power of compound interest. As you move through your 30s and 40s, major life changes like marriage, having children, and career shifts can impact your ability to save. 

Debt obligations

High-interest debt, such as credit card balances or personal loans, can significantly hinder saving. It's important to balance debt repayment with your savings goals to ensure you're making progress on both fronts.

One strategy is to focus on paying off high-interest debt while setting aside a smaller income for savings. As you pay off debt, you can redirect those payments toward your savings goals, increasing your monthly savings rate.

Another approach is to allocate a fixed percentage of your income towards debt repayment and savings. This ensures that you're consistently working towards both objectives.

5 ways to increase your monthly savings

Even if you're already saving a portion of your income, there may be opportunities to boost your monthly savings. Here are some strategies to consider:

1. Cut back on your spending 

One of the most effective ways to increase your savings is to create a budget and track your spending. Use budgeting tools and apps to review your expenses and identify areas where you can cut back.

Look for areas where you can reduce costs without significantly impacting your quality of life. For example, you might eat out less frequently, cancel subscriptions you don't use, or shop around for better deals on insurance or utilities.

2. Automate your savings 

Automating the process is one of the most effective ways to ensure consistent savings. Set up automatic transfers from your checking account to your savings accounts regularly, such as every payday.

By treating savings as a non-negotiable "expense," you'll be less tempted to spend the money elsewhere and more likely to stay on track with your goals.

3. Boost your income 

If you've already trimmed your expenses and still want to increase your savings rate, consider ways to boost your income. This could involve negotiating a raise at your current job, pursuing a promotion, or taking on a side hustle or freelance work. 

Increasing your income and dedicating part of those extra funds to savings can accelerate your progress toward your savings goals.

4. Save a percentage of your salary increases

One way to boost your savings without feeling the pinch is to allocate some of your salary increases or bonuses to savings. For example, if you receive a 3% raise, you could put 1-2% of that increase toward your savings while still enjoying a slight bump in your take-home pay.

This allows you to maintain your current lifestyle while gradually increasing your savings. As you advance in your career and your income grows, these incremental increases can add up.

5. Take advantage of employer benefits 

Many employers offer benefits that can help you boost your savings, such as:

• Employer-sponsored retirement plans: Make sure you contribute enough to maximize employer matching contributions. This is essentially free money towards your retirement savings.
• Health Savings Accounts (HSAs): If you have a high-deductible health plan, you may be eligible for an HSA. These accounts allow you to save pre-tax dollars for healthcare expenses, and the funds can be invested for long-term growth.
• Flexible Spending Accounts (FSAs): FSAs allow you to set aside pre-tax dollars for qualified healthcare or dependent care expenses, reducing your taxable income and increasing your take-home pay.

Common savings mistakes to avoid 

To ensure that you're making the most of your monthly savings, be sure to avoid these common mistakes:

Not having an emergency fund 

One of the biggest savings mistakes is not prioritizing an emergency fund. Before focusing on other savings goals, aim to build an emergency fund covering 3-6 months' living expenses. This buffer will protect you from unexpected financial shocks derailing your savings progress. 

Neglecting retirement savings 

Another common mistake is putting off retirement savings until later in life. The earlier you start saving, the more time you have to benefit from compound interest. Even if you can only afford to save a small amount each month, start as early as possible and gradually increase your contributions over time.

Failing to align savings with goals 

To make the most of your monthly savings, aligning your savings with your specific financial goals is crucial. Set clear targets for your savings goals and allocate your monthly contributions accordingly. This will help you stay motivated and on track as you work towards your goals.

Not reviewing and adjusting your savings plan over time 

Don't make the mistake of setting your savings plan on autopilot and forgetting about it. Regularly review your progress, assess your goals, and adjust as needed. As your financial situation changes, adapt your savings strategy to ensure you always make the most of your money.

The bottom line 

Determining how much to save each month is crucial to securing your financial future. By considering your income, expenses, and financial goals, you can create a personalized savings plan that works for you.

Remember, everyone's financial situation is unique, and there's no one-size-fits-all approach to saving. The key is to start saving consistently, no matter how small the amount, and gradually increase your contributions over time.

Editorial disclosure: Opinions expressed are author's alone, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included in the post.