Wondering how much of your paycheck you should save? Almost every finance expert will tell you that it’s crucial to set aside a portion of your income each month. But let’s be real, for most of us, saving money can feel like a never-ending battle—let alone reaching that magical, ideal number.
According to CNBC, 65% of Americans are living paycheck to paycheck. Some are heavily affected by inflation and layoffs, while others simply don’t prioritize saving or don’t know how to manage their finances. Regardless of the reason, one lesson from the past five years is clear: The more financially prepared you are for the unpredictable, the better you’ll be.
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We asked finance experts how much to save per paycheck and here’s what they advise.
How much should you save from each paycheck?
When it comes to savings, there’s no one-size-fits-all budgeting rule. Everyone’s incomes and responsibilities are different, after all. But, in general, finance experts recommend that you should aim to save 20% of your paycheck each month.
“The ideal rate can vary based on individual financial goals and living expenses, but a general rule is to aim for at least 20% of your income,” says Marcel Miu, Founder and Lead Wealth Planner at Simplify Wealth Planning.
How to save 20% of your paycheck every month?
Knowing how much of a paycheck to save is the first step. “However, with the current level of inflation and cost of living, this amount may seem unattainable for some,” says Amy Coroso, certified financial education instructor and author of Planning Your Retirement Life.
To achieve this goal of saving 20% monthly, it’s important to set up a system that will work for you. If you’re new to budgeting, two simple ways to start are the 50/30/20 rule and the zero-based budget. Here’s how they work:
The 50/30/20 rule
One of the most popular budgeting methods, the 50/30/20 budget outlines exactly how to split your income. “Fifty percent goes towards essential expenses like housing, food, and utilities, 30% towards discretionary spending such as entertainment and dining out, and 20% towards savings and debt repayment,” says Brian Quigley, finance expert and Founder at Beacon Lending.
For example: if you make $5000, you’d spend $2,500 on essential expenses, $1,500 on discretionary expenses, and $1,000 on savings.
Coroso points out that this budgeting method might be better suited for those already in a healthy financial position. “50/30/20 is fine for someone who has been quite diligent with their money, has a system in place, and no longer feels the need to track every penny,” she says.
Zero-based budget
In the zero-based budget, your income minus your expenses should always equal zero. This means assigning every dollar a specific purpose or place to go. “For new budgeters, I recommend this budget method, where they are giving every dollar a ‘job’ and paying attention to everything that is coming in and going out,” Coroso says.
Here’s an example of a person who earns $6,000 a month:
Income: + $6,000
Rent: – $2,500
Car insurance: – $350
Electric bill: – $150
Gas: – $300
Food: – $800
Miscellaneous (clothes, streaming services, gym, etc): – $700
Savings: – $1,200
Final amount = $0
The idea isn’t to actually spend every cent allocated but to spend more consciously—potentially leaving some money at the end of the month to put on savings. “This provides real insight into spending habits, and how our values are aligning with our actual behavior,” Coroso says.
How to distribute your 20% of savings?
You should also budget your savings. This means dividing the 20% you saved from your income for different purposes, such as retirement and emergencies. “Prioritize building an emergency fund first, then focus on retirement contributions and other financial goals like saving for a down payment or paying off debt,” Quigley says.
“It may be tempting to throw the entire 20% at paying off debt,” Coroso says. “However, if there is no savings, when an emergency hits, you’ll be forced to use a credit card, perpetuating the debt cycle.”
Your emergency fund should cover at least six months of living expenses, including rent, utilities, food, and transportation. For instance, if you spend $2,000 monthly on these essentials, aim to save at least $12,000. If that’s not feasible, Coroso suggests starting with at least $1,000 per month.
“Once an emergency fund has been established, then the debt can be attacked,” she says. “Investments should wait until high-interest debt—anything over 7% or 8%—has been paid off, because you will lose more in interest than you will typically earn on an investment.”
After that, focus on your short- and long-term savings goals, like retirement, a new car, or a trip. It’s also wise to keep adding to your savings account regularly, even if it’s just a small amount.
Where to put your savings
As a general rule of thumb, it’s recommended to allocate your emergency fund and long-term savings in a money market account or a high-yield savings account, as both offer better interest rates than regular savings accounts.
As for retirement savings, the usual retirement accounts are the 401(k) and the IRAs (Individual Retirement Arrangements). Consult your bank manager or a financial advisor to determine which is best for you and your goals.
How much money to save when 20% is not realistic?
If saving 20% of your income isn’t feasible right now, start with whatever amount you can manage. “Focus on setting a smaller, more manageable goal: like saving 5% of your income or just starting with $20 per paycheck,” says Miu. “The key is to create the habit of saving and to increase this as your financial situation improves.”
You can also work on reducing expenses or increasing your income—as long as it doesn’t negatively affect your quality of life, Coroso says. “Start with what you can while looking at areas where you can reduce overspending, and/or create additional income—without adding stress or depriving yourself of any enjoyment,” she says.
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As a motivator, set a goal that you can achieve today—not one that you hope you can achieve in a few months. “Automate your savings deposit either with your employer or bank, so you don’t even need to think about it,” Coroso says. “As income increases, savings can increase.”
Key takeaways
- You should save 20% of your paycheck every month
- If you can’t save 20% of your income, save as much as you can, even if it’s only $20
- Prioritize saving for an emergency fund to cover at least six months of living expenses
- A portion of your savings should go toward retirement and personal financial goals
- Allocate your savings in a high-yield savings account or a money market account because they have better interest rates
