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How much should I save a 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!
Trying to balance paying your bills, saving for the future, and still having a little fun is challenging.
Figuring out how much you should save each month can help guide your budget and keep you on track. 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 of budgeting?
- How much of my paycheck should I save each month?
- How can I Increase my savings?
- Where are the best places to save my money?
- How do credit card payments fit into my monthly budget?
- What strategies will 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 and saving. But, it is a standard guide to follow.
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 personal finance book that details the 50/30/20 budgeting rule: “All Your Worth: The Ultimate Lifetime Money Plan.”
According to this savings guide, 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.
It’s important to note that you should use your after-tax (take home) income when calculating the percentage of your paycheck you should save each month!
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To calculate how much you should save a 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. There are certainly a lot of items that add up to make up the needs column.
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. Try renting a part of your home on AirBnb for extra money to save.
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 budget 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.
20% of Your paycheck is how much you should save each month:
- Save, save, save!
20% is how much you should save a month from your paycheck. This is what you need in order to be prepared for emergencies, and for your future.
So make sure each month that you are setting aside 20% of your paycheck.
How much to save per Paycheck calculator
To figure out how the 50/30/20 rule works for your income, input your after-tax paycheck amount in the paycheck savings calculator tool below and press enter.
This calculator will show exactly how much of your paycheck you should save each month.
Did you know that 78% of Americans are living paycheck-to-paycheck? But even if you are on a tight budget you can find ways to save.
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.
Easy ways to Increase your savings each month
So, where should you save your money? And, how can you make it grow while it is in savings?
Well, the answer depends on the fact that you need to be getting a return on your savings to amplify it. Setting up your monthly savings in a way that it earns money will go along way to helping you save even more.
And how do you get that return on your savings?
By boosting it with a 401K or a high yield savings account. So basically, the question of where should I save my money also answers how I can boost my savings each month.
401K retirement account
Saving money into a 401K retirement fund is a great way to make what you are saving every month 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 save just $100 a week in a 401K fund that has a 7% return you will have $226, 674.78 saved in just 20 years!
If you are lucky enough to have an employer with a 401k match program then you should opt-in for the maximum amount.
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!
Plus, if you ever run into a life issue and you need to access that money you can actually take out a 401k loan. I have done this more than once myself!
If you want to purchase a new home, you are allowed to take a loan from your 401K savings without incurring a penalty.
You get to set up your payment plan and how long you want to take to pay it back. You will pay interest as you make payments but the amazing thing is that interest just goes back into your 401K! So you are paying yourself interest basically.
High yield savings account
Another way to boost how much 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.
CIT Bank is an excellent option for your banking in order to make your savings each month grow exponentially.
They have a few products to help such as Savings Connect, Savings Builder and a Money Market Account. Their savings account has a 0.4% APR return on your money which is much higher than many others banks out there.
There is really zero point in setting up a savings account with any bank that does not provide a return like that when you can sign up with CIT Bank instead.
Plus, they have an award-winning app, making banking with them even easier.
Another great banking option is actually from Discover! I use Discover Bank online savings and love it. It currently has a 0.4% return so every month you add to your savings account, it will add a bump of additional funds.
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 what 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.
According to a 2019 survey from CreditCards.com, the average APR for credit cards is 17.25%. That is a large chunk of your money getting wasted each month!
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.
Strategies to help you save more money each month
Sometimes making sure you save money 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:
Make a budget
I know you’ve heard about doing this a million times. But it truly is a helpful tool. Download a budget planner sheet and write down all your expenses in one place.
Tracking what you spend and where, can help you identify ways to find more money to save. Knowing how much money you spend will help you identify exactly how much you can save monthly.
You might be spending a lot more money each month than your realize! You need a budget to track every penny.
And, you may need to adopt some Thrifty Living Tips to help yourself stick to a budget and save even more money.
Also, here are several options for free budget planner templates.
Set a monthly savings 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.
You can even save more in certain months so that you can splurge in others.
Earn more to save more every month
One of the best ways to save more each month is to simply earn more. You can increase what you save every month multi-fold by doing this.
There are a ton of ways to make an extra $1,000 a month. Take an extra part-time job, try a side-hustle, or rent a room in your house. The point is, the more you make, the more you can save.
You can even take an extra part-time job to amp up your monthly income. In just a few short months, you could save a few thousand this way!
Plus, if you are flush with extra funds you could spend more on the fun stuff as well!
Use an app to help you save money every month
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!
Digit is another excellent app to use to help with your monthly savings.
It is an easy-to-use app that lets you automate your savings. It actually studies your spending, the money that comes in and out of your account and your goals.
It then automatically moves money for you into your savings account in small amounts, so you don’t even notice!
If setting aside money to save each month is hard to remember, an automated app like Digit or Acorns will do it for you.
Change your direct deposit to include automatic saving
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.
How much should I have in savings at 30?
Believe it or not, there is actually a guide to how much you should have saved by a certain age. So in your 20s, 30s, and 40s you can follow an estimate of savings.
One recommendation for savings by your age is that you should try to save one times your salary by age 30 and then increase your savings by your annual salary every five years.
This just means that by the time you are 30 years old, you should have one entire year of your salary in savings.
How much should I save in my 20s?
So how much should I save in my 20s to make this goal? You should probably save more like 25% of your paycheck each month in your 20s if you can.
Here’s what monthly savings by age looks like:
- At age 30, you should have 1x your income in savings
- By age 40, 3x your income
- Age 50, you should have 5x your income in savings
- By age 60, 7x your income
No matter what age you are, you should be doing your best to save 20% of your paycheck each month.
How Much does the average american save a month?
The average American saves less than 5% a month. Way less than the recommended 20% monthly savings!
And, according to a survey by the Fed’s 2019 Survey of Consumer Finances the typical American household has $5,300 in a savings account.
Why do I need to save money each month?
Saving money every month is key to your financial health and your future. You need a savings account first of all for any emergencies that arise.
Life is full of them! The last thing you want is to not be able to pay for a car repair because you have nothing in an emergency fund. No car means you can’t get to your job to make that all important paycheck each month!
Another reason you need to save money might be for a downpayment on a house, or for your kid’s college fund or maybe for a business idea you have.
It is much better to buy your own home than to throw money away every month on rent. Check out this step-by-step guide on buying your first home.
Final Thoughts on saving money every month
You have to start putting money aside every month if you aren’t already! Saving money can actually help you make more money if you use it wisely.
And, 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!
Save the “How Much Should You Save Each Month” Infographic below as a reminder!
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Here are my favorite budgeting and saving apps:
Rakuten for cash back on shopping. Use this link to make a $30 welcome bonus.
iBotta for special offers and cash back on groceries.
Acorns which takes your spare change from purchases and invests it for you to help you make even more money.
Personal Capital for money management. Get a money dashboard, free analysis and personalized wealth advice.