How much should I save each month? If you are asking yourself this, you are not alone.
It is a common question and according to google there are about 868,000,000 results of answers to describe how to save!
Trying to balance paying your bills, saving for the future, and having a little fun is challenging.
Figuring out how much you should save each month can help guide your budget. And it can have a huge affect on your financial future.
In this guide to savings we will answer a few questions to help you:
What is the 50/30/20 rule?
How much of my paycheck should I save each month?
How can I boost my savings?
What are the best places to save my money?
How do credit card payments fit into my monthly budget?
What strategies are most effective to help me save each month?
The 50/30/20 Budgeting Rule
What is the 50/30/20 budget rule? You may or may not have heard of this guide to budgeting.
Elizabeth Warren, a U.S. Senator from Massachusetts and a Harvard bankruptcy expert created the “50/30/20 rule” for spending and saving.
She and her daughter, Amelia Warren Tyagi co-authored a great personal finance book that details the budgeting rule: “All Your Worth: The Ultimate Lifetime Money Plan.”
According to this budgeting and saving rule, 50% of your income should go towards meeting your needs, 30% for wants, and 20% is exactly how much of your income you should save each month.
It’s important to note that you should use your after-tax (take home) income when calculating the percentage you should save each month!
To calculate what you should save each month, make sure you use your after-taxes (take-home) income amount!
50% of Your Income Should be Spent on Necessities:
- Housing
- Groceries
- Utilities
- Insurance
- Car payment
The 50/30/20 rule states that 50% of your after-tax income should be spent on necessities.
The things you have to have like a roof over your head, car insurance, utility bills, and food to name a few.
If you add up all your needs and it totals more than half of your after-tax income then you need to make lifestyle adjustments to bring that number down.
You can rent out a room in your house to help cut costs. If your car is too expensive, downgrading to something cheaper can help you have a lot more money for saving each month.
30% of Your Income Should be Spent on Wants:
- Dining out
- Shopping
- Entertainment
The good news is, you can spend a whole 30% on your wants! That’s a decent slice of the pie.
Make sure at the beginning of the month you write down your budget and know exactly how much that 30% is.
Keep track every time you purchase something that isn’t a need so you can make sure not to overspend beyond the 30%.
You may think of wants as simply entertainment or travel and the biggies like that.
But truth be told, some items like cable or satellite dish for your t.v. may seem like a “need” but actually are a “want.” Just make sure you aren’t misclassifying things!
You should save 20% of Your Income each month:
- Save, save, save!
You should be saving at least 20% of your paycheck each month.
To figure out how the 50/30/20 rule works for your income, input your after-tax paycheck amount in the budgeting calculator tool below and press enter. This will show exactly how much of your paycheck you should save each month.
Part of the reason for the 20% suggestion on how much to save each month is that this is estimated to be what you need in order to retire some day safely.
But you need to be getting a return on your savings to amplify it. And how do you get that return? By boosting your savings with a 401K or a high yield savings account.
Easy ways to boost your savings each month
401K retirement account
Saving money into a 401K retirement fund is a great way to make what you are saving grow into more.
On average, money you save in a 401K will provide a 5% return. At least some of your savings each month should come from adding it to a 401K program.
The catch is you can’t access that money until retirement, but it is the highest and safest return on your savings that you can get. And it is a great way to take your money and make it grow.
If you are lucky enough to have an employer with a 401k match program then you should opt-in for the maximum.
In other words, if your employer will match 100% of your 401k contribution up to 6% of your salary, you should contribute the full 6% from your paycheck. You are basically doubling your money and your savings!
High yield savings account
Another way to boost what you save each month is to place it in a high yield savings account. That way the money you save is actually making you money.
I use Discover Bank online savings and love it. It currently has a 1.85% return!
What about debt repayment and credit cards?
You may be wondering how your credit card debt fits into the 50/30/20 rule of budgeting and how it affects how much you should save each month.
The minimum payments you have on any debt is classified as a “need.” It should be added into your 50% allocation to needs.
However, making additional payments beyond the minimum is crucial for your financial health. Getting out of debt can be the best thing you could do for yourself.
Because of that, making extra payments can technically be added into part of your 20% savings column.
If you are carrying a lot of debt, I highly recommend sinking every penny you can into extra payments to reduce it.
Since finance charges mean less money you can save and less money for your future, then reducing your “wants” in favor of paying down debt is a good choice.
There are lots of tactics to help you pay down debt faster, try these 14 cash hacks to help!
Strategies to help you save each month
Sometimes making sure you save each month can be challenging. It is hard to stay on track especially when your paycheck goes quickly.
Here are some strategies to help you save money each month:
Set a goal
Once you have figured out how much you need to save each month, write it down.
Pin it your refrigerator as a reminder and write down each dollar you save! This can help you stay on track.
In addition, set an extra goal for saving more funds if you want to go on vacation, or buy a treat for yourself.
Change your direct deposit
Some employers will allow you to designate more than one account for direct deposit of your paycheck.
You can actually have the amount you need to save each month taken out of your paycheck and placed in a separate account. This way, the funds go immediately into a savings account.
Another way to ensure you save is to set up an automatic transfer from your checking into your savings at your bank. The more you can automate your savings, the easier it will be.
Use an app to help you save
Another way to help yourself save enough each month is to use an app.
With an app, you can automate your savings, making sure you don’t forget to do it or accidentally overspend before saving.
My personal favorite is Acorns. Not only does it automatically add your spare change from purchases into one spot to build your savings, it invests that money at the same time so it grows.
Use my personal link and earn an immediate $5 in your account!
Qapital savings app is an easy-to-use app that lets you automate your savings. You set up the rules, link it to your checking account and it will do the work for you.
If setting aside money to save each month is hard to remember, an automated app like this will do it for you. The only downside is there is a monthly fee.
Staying on top of your savings is key for your financial health and future.
The most important part of how much you should save each month, is starting today!
Even if all you can save is a small amount, keep saving something and see how it grows!
Next post: 10 Easy Ways to Save Money
