Have you ever wondered how much to save per month? If so, you are not alone. This is a very common question and is very simple to figure out.
Most experts recommend putting away at least 20% of your paycheck into savings per month.
Most adults have no savings at all nor have any clue on how much to save per month. To put this in perspective, about 28% of adults in the United States have zero savings set aside. And 76% of Americans live paycheck to paycheck.
In this article, I will give you a quick and easy rule that can help guide you into saving at least 20% of your paycheck each month. The goal of this rule is to ensure that you can afford the things you want and need while also having a healthy amount of emergency savings. Hopefully, you won’t ever be in an emergency that requires an out-of-pocket payment, but it is also hard to predict the future so it’s best to be prepared.
No matter your age or where you are in life, it is always a good idea to have money saved aside. Although the amount of savings varies from person to person, experts recommend most adults to have enough savings that would cover your living expenses for around 3-6 months.
Calculate your take-home pay
First, you should calculate your total take-home pay. Your take-home pay is the amount you take home after paying the necessary taxes and deductions. In order to figure out how much to save per month, you have to find out what starting amount you are working with.
To figure out how much you should take home from each paycheck, you must calculate your current salary, tax rate, and other tax deductions.
Calculating your take-home pay is a great place to start to figure out how much to save per month. Feel free to use this calculator here to find your take-home pay amount, or estimate in your head how much you get paid monthly on your bank account statements or checks.
Saving for retirement
If you only can pick one type of savings account, consider choosing to prioritize retirement savings first.
If you are confused about which retirement account you should decide on, check out my article on 401(k)s and Roth 401(k)s here. If you are wondering how much to save per month for retirement, experts usually recommend saving 10%-15% of your paycheck per month as a general guideline. If you can only save 3%-6%, that is okay too – the main idea here is to start saving part of each paycheck for retirement.
A small amount of savings adds up
It might be intimidating to start saving money, but all you need to do is to start small. Don’t stress out though if you haven’t started saving or if you already feel tight on cash.
Can you start with saving $5 a day? If you saved $5 a day, you could have a whopping $1,825 ($5 a day multiplied by 365 days in a year)
I bet you could start with $5 a day.
The 50/30/20 Rule for spending
The 50/30/20 Rule is an excellent tactic if you want an easy rule to figure out how much to save per month.
Although this rule varies from person to person, it is just a general suggestion and may help you get started.
First, make a list of what your monthly needs are.
50% maximum “The needs” – what you have to pay for and cannot live without
- Monthly rent or mortgage payment
- Groceries
- Health care costs
- Insurance
- Child care costs
- Car payments
- Credit card debt
Now, make a list of what your monthly wants are.
30% maximum “The wants” – things you can live without
- Online shopping
- Spending money on restaurants and bars
- Netflix and Disney + subscription (pick one!)
- Fun travel trips
- Gifts for friends
20% minimum – Your savings goal
After figuring out your spending needs (50%) and your spending wants (30%), it leaves room for 20% (a rough estimate) for your savings.
The remaining 20% should go into your savings.
Although 20% is the recommended minimum, saving more is always better. Research proves that aiming for a 20% savings target will be your best bet at reaching financial happiness assuming you are still in your 20s or 30s.
Note – the 20% savings goal number does not consider your retirement savings. If you only have enough to save for retirement, include that into the 20% savings rule. For example, if you are saving 10% monthly for retirement, try to also save another 10% for your emergency funds.
Final thoughts
Overall, it is crucial to start saving money monthly from every paycheck to ensure future financial happiness. Saving money can sound intimidating at first, but don’t let it scare you.
Just a small amount of savings can lead to a big reward.
Ashley is a finance graduate from the University of San Francisco and currently works at a financial technology startup in San Francisco that is focused on providing affordable and accessible 401(k) retirement plans to other startups and small businesses. Prior to working at a startup, she was an associate at a large private wealth management firm working with high-net-worth clients. She is born and raised in Orange County, CA, and loves spending time at the beach, in a pool, reading, and with her friends.
