Savings goals: How much should I save each month?

We all know that we’re supposed to save some of our money for everything from college to retirement or just for a rainy-day splurge. What can be difficult to figure out, though, is how much to save. The answer depends on your situation and your goals.

How much money should I save a month?

To know how much effort should go into saving for tomorrow, you must understand where you are today. A good start is to determine your current savings, analyze your spending, and decide what you want to save for. Then you can take these steps:

1. Make a budget

Regardless of what you make, how much you want to save, or how you allocate your money each month, a budget is an important tool for any household that wants to meet its financial goals. Making a budget requires setting limits and deciding where to best spend your money. Sticking to a budget can make reaching your monthly savings goals much easier.

2. Plan to get out of debt

If you’re walking around with credit card balances, student loans, or a car loan, paying off your debt is an important first step to maximizing your savings.

Monthly debt payments can be frustrating, as they take away income that otherwise could be allocated to savings. However, you can still get ahead. Whether you opt for debt-paying methods like the debt snowball or avalanche, turn to debt consolidation or no interest balance transfers to pay off your debts, make sure you create a plan that works for you.

3. Determine future plans

Are you saving for a down payment on a home? How much money do you need in retirement? Will you be paying for your child’s college education? Do you have a family member with a disability to consider in your future financial planning?

Each person’s plans will look different. Before you start crunching the numbers, figure out what you’re saving for and what’s important to you.

How much of your income should you save?

There is no hard and fast rule about how much you should set aside each month in savings. Your decision should focus on what you can afford to save and your financial goals.

For example, if you’re behind on preparing for retirement, you may need to save more aggressively now to meet your goals. Even a 15% – 20% savings rate might not be enough to get meet your goals. On the other hand, if you’ve been saving 75% of your paycheck for 20 years, you can probably afford to be a bit more lenient.

Here are some common savings strategies to help you get started.

The 50/30/20 budget rule

The 50/30/20 rule is a simple calculation based on your household income. You simply take your after-tax income, allocating 50% for needs (such as your housing costs and food). Then, allocate 30% toward wants, such as entertainment, and 20% to savings. If you can allocate more than 20% to savings – spending less than 30% on your wants – you’ll be doing even better.

The 40/30/20/10 budget rule

The 40/30/20/10 rule is like the 50/30/20 rule, except it takes 10% of your household income designated for needs and puts it toward donations and charitable causes. In other words, 40% goes toward needs, 30% goes toward wants, 20% goes toward savings, and 10% goes toward donations.

This is a great savings strategy for those who want to give back while building their own financial future. You’ll just need to make sure you can survive on 40% instead of 50% of your income for your living needs.

Which strategy is best?

The best savings strategy depends on your finances and goals. It’s important to weigh the pros and cons of each approach.

Know how much you need to save

There is more than one type of savings to consider when determining how much money you need to set aside. Here’s a look at where you should focus your efforts, and how much you should ideally have in savings.

Emergency savings

Many American households may be unprepared for unexpected expenses, including car or house repairs or a major health emergency.

Aim for at least $1,000 saved in an easily accessible, emergency savings account. This emergency fund could provide you and your family with quick cash if something unexpected happens, so that you can avoid using a credit card.

Once you’ve set aside your initial $1,000, continue saving until you have about 3 – 6 months’ worth of living expenses. This can protect your family if an illness, injury, or job loss occurs that affects your income.

Average retirement savings

According to a recent survey by Northwestern Mutual, the average balance of millennials’ retirement savings is $63,300. Gen Xers were found to have an average of $98,900 saved for retirement, while adults of Gen Z have about $37,000 currently put away.

Baby boomers were found to have an average of $138,900 by the age of 60 in retirement funds, which is behind Fidelity’s recommended retirement guidelines by over $130,000. Fidelity recommends saving around eight times the amount of your income by the time you’re 60 to retire comfortably.

To attain these retirement goals, it’s recommended you save 15% of your annual income from age 25 onward.

Minimum percentage to save per month

For some people, the idea of spending less than 50% of their income on housing costs and needs seems impossible and putting aside 20% or more for savings infeasible. However, it may be easier than you think.

The most important rule about saving is to start early and save what you can. Even if you just set aside 2% of your income each month, you’re still saving. You can always increase the amount over time.

Make a rule to pay yourself first. Put money into savings before you spend your paycheck. You also can automate your savings by scheduling bank transfers.

Where to keep your savings

Your emergency savings should be readily accessible, so it’s recommended to keep those funds liquid. For example, putting your savings in a high-yield savings account can earn interest and allows quick access to your money. A certificate of deposit also can be a safe place to put funds earmarked for future goals, such as buying a house or a car.

Retirement savings should be kept in a properly balanced investment portfolio where the funds can grow over time. The more your money can grow on its own, the less you will actively need to save to meet your goals.

FAQs about saving money every month

Here are answers to common questions about how much you should save.

How much should I save by the time I’m 30?

According to Fidelity, most people should have the equivalent of their starting salary saved by the age of 30. This includes retirement savings and any investments.

How can I increase how much I save a month?

A great way to increase your savings is to increase your income with a new job or take on a side hustle. When you get a raise at work, allocate those additional funds into your savings.

How can I pay down my debts and save more?

There are various ways to pay off debt. If you think debt consolidation is your best bet, a personal loan can be a fast and straightforward option.

Final thoughts about how much to save each month

It’s not always easy to determine how much of your income you should save every month. The numbers will be different for everyone and may even change over time. However, knowing where you stand today and where you want to be tomorrow can help you decide your path going forward.

If you’re considering a personal loan for paying off existing debts to increase your savings, get prequalified today with Rocket Loans℠.