How Much Should I Save Each Month? (2024)

Most people know the importance of saving, but deciding how much to save each month is less clear-cut. The answer to this question depends on your personal circ*mstances. Thankfully, general guidelines can give you a better sense of how much you should be saving.

How Much Should I Save Each Month?

There isn’t a one-size-fits-all answer to how much you should save per month. It depends on factors such as your age, income and goals. However, the “50/30/20” approach can give you a general idea of how much income to stash away in a savings account.

This popular rule of thumb suggests you spend 50% of your after-tax income on needs (such as housing and utilities), 30% on wants and 20% on savings and debt repayment.

Let’s look at how that breaks down for someone with a monthly after-tax income of $4,000.

• Needs: $2,000 (50% of income)
• Wants: $1,200 (30% of income)
• Savings and debt repayment: $800 (20% of income)

Like all financial advice, the 50/30/20 method won’t work for everyone. Saving 20% of each paycheck may be too high for some and too low for others. If you’re new to your career and living in an expensive area, you might not be able to achieve that percentage until you get a few raises. And if you’re behind on retirement savings, you’ll probably want to save more than 20% of your income to catch up.

You can play around with a savings calculator and plug in the exact numbers to see how long it will take to achieve your financial goals.

How To Increase My Savings Each Month

Boosting your savings rate requires you to increase your income or decrease your spending. If you can do both, even better. Here are some ways to do that.

• Track your spending. Figuring out where your money’s going helps you can gain control over your finances. Track your spending manually by combing through your bank statements, or use a budgeting app that automates the process.
• Automate savings. Automating your savings involves “paying yourself first” by putting income into savings before you have the chance to spend it. The best online savings accounts make this easy by offering automatic transfers, round-ups and the ability to have a percentage of your paycheck direct deposited into savings.
• Pay off debt. Carrying lots of debt can eat away at your income and diminish your ability to save. Focus on paying off high-interest debt first. Once you’ve done that, you can shift the money you were paying toward your debt to your savings instead.
• Negotiate a raise. Getting a raise is one of the quickest ways to increase your savings, but only if you save the difference and avoid falling prey to lifestyle creep.
• Earn money on the side. If you’re unable to increase your income through traditional employment, try earning money on the side by creating passive income streams.

What Should I Spend My Income On?

Sticking with the 50/30/20 guideline, about half of your income should be spent on needs or fixed expenses. This includes your housing (rent or mortgage payments), utilities, car payments, insurance premiums, childcare and taxes.

Another 30% of your income can go toward “wants” or variable expenses. These include groceries, dining, entertainment, personal care, clothing, hobbies, home maintenance and car repairs.

Finally, the remaining 20% of your income should be saved (or put toward debt obligations if you have them). This includes putting money toward an emergency saving fund, saving for financial goals like retirement and vacations, and paying off any credit card and loan balances.

What Should I Save For?

Everyone’s goals are different, but here are some of the most common savings goals.

Emergency Fund

Emergency funds provide you with a buffer so an unexpected expense doesn’t wreck your finances. Most experts advise saving at least three to six months of living expenses in an emergency fund. To determine how much to save, list your basic monthly living expenses and multiply that amount by the number of months. If your basic monthly expenses add up to $3,000, a six-month emergency fund is $18,000.

Retirement

Saving for your golden years is one of the most important reasons to build up a nest egg. Typically, people save for retirement with retirement accounts such as 401(k)s and IRAs. If your employer offers a retirement plan and company matching, try to contribute the maximum amount possible.

Life Goals

Whether you dream of buying a home, getting a new car or going on a European vacation, most life goals require some money in the bank. Your emergency fund and retirement savings should probably take precedence, but once you’re on track with those savings priorities, you can start focusing on more fun goals.

Where Should I Keep My Savings?

It’s best to move money you don’t need for everyday spending out of your checking account to earn interest on it and avoid overspending. Here are some of the best places to save your money:

• Savings account. Savings accounts keep your money secure and sometimes pay interest. Look for accounts with no monthly fees.
• High-yield savings account. A high-yield savings account is a savings account that offers a higher-than-average interest rate or annual percentage yield (APY), which helps your money grow faster. Many high-yield savings accounts are available for free from online banks.
• Money market account. Like high-yield savings accounts, money market accounts offer a risk-free place to stash money while earning interest. These accounts come with features like debit cards and check-writing privileges, making it easier to access your money.
• Certificate of deposit (CD). A certificate of deposit account offers a fixed interest rate, and the best CD rates are higher than what you’ll earn with the accounts mentioned above. In exchange for fixed interest, you agree to keep your money in the account for a set term, which can be anywhere from a week to five years or more. There are usually penalties if you withdraw your money early, so CDs are best for money you won’t need to access for a while.

Bottom Line

Knowing how much to save each month is helpful. And if you’re not sure exactly how much to save, start by stashing away whatever you can. The earlier you start saving, the better.