Image of girl saving income in personal piggy bank.

How Much Income Should You Save Every Month?

5-Minute Read


We all know that we’re supposed to set aside some of our monthly earnings to prepare for everything from retirement to college tuition or just a rainy day. What can be hard to figure out, though, is just how much we should be saving.

Figuring that out depends on a number of personal factors. Your answer might be different from a neighbor’s, a friend’s or even your sibling’s, depending on things like your own family budget and future endeavors.

Let’s look at a few of the questions you need to ask yourself when determining how much of your income you should set aside and save every month.

First, Know Where You Stand

It’s difficult to know how much effort should go into saving for tomorrow if you don’t first understand where you are today.

By calculating your current savings, analyzing your household budget, and planning for both big purchases and retirement, you’ll get a better idea of how your finances stand and how aggressive you’ll need to be moving forward.

Make A Budget

It doesn’t matter what you make, how much you want to save, or where your money gets allocated each month. A strong budget is an important tool for any household that wants to meet certain financial goals.

Don’t know where to start? That’s ok! We created a guide for you on how to make a budget, which walks you through the why, what and how of setting personal spending limits. As long as you can stick to that budget, monthly savings goals should be a breeze.

Plan To Get Out Of Debt

If you’re walking around with balances on credit cards, still owe on student loans, or are trying to pay off a vehicle, figuring out how to pay off your debt is an important first step to maximizing your saving efforts.

Monthly debt payments can feel frustrating, as they account for a portion of your income that could otherwise be allocated to savings. Whether you opt for a method like the debt snowball, turn to debt consolidation, or utilize 0% balance transfer offers to pay off the balance(s) sooner, make a plan to get out of debt.

Then, once you drop those balances, you can redirect that money toward savings each month.

Determine Future Plans

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 family’s future plans will look a bit different from the next. Before you can adequately start crunching the numbers, take some time to figure out what you’re saving for and what you need to prioritize.

If you need help getting started, check out our online personal finances resource center for more ideas and smart financing recommendations!

Second, Break Up Your Paycheck

There is no hard and fast rule about how much of your paycheck you should set aside each month. Really, it comes down to what you can afford to save and what you personally need to save.

For example, if you’re behind on preparing for retirement, you may need to save more aggressively now to meet your goals. So, even a 15% to 20% savings rate might not be enough to get you there. 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.

With all of that said, there is one general rule of thumb to consider when it comes to saving, especially if you have no idea where to start.

The 50/30/20 Budget Rule

Made popular in Senator Elizabeth Warren’s 2005 book, “All Your Worth: The Ultimate Lifetime Money Plan,” the 50/30/20 rule is a simple calculation to find your household income. You simply take your after-tax income, allocating 50% for needs (such as your housing costs and food). Then, put 30% toward wants (like the cable bill) and 20% into savings.

Even if your numbers aren’t perfectly split, aiming to spend less than half of your income on living expenses is always wise. And if you can put more than 20% into savings – spending less than 30% on those optional “wants” – you’ll be doing even better.

Third, Understand How Much Funds You Need in Your Savings Account

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

Emergency Savings

Millions of American households are unprepared for even a $400 unexpected expense. This means that something as simple as a faulty water heater or car trouble could send them spiraling into debt.

To avoid this, you should aim to have at least $1,000 saved in an easily accessible, emergency savings account. This emergency fund would provide you and your family with quick cash if something unexpected were to happen, so that you could avoid using a credit card.

Once you’ve set aside your initial $1,000, aim to also save up a safety net with about 3 to 6 months’ worth of living expenses. This could help protect your family if an illness, injury or job loss were to occur that impacted your typical cash flow.

Average Retirement Savings

According to a recent survey by the Insured Retirement Institute, nearly half of baby boomers today have nothing saved for retirement. Of those that do have retirement savings, about half of them have less than $250,000 saved.

It’s easy to see how that could create a lot of anxiety for this older generation. To avoid winding up in the same situation, though, you’ll need to plan well for retirement and save accordingly today.

So, how much do you actually need for retirement? Many experts agree that saving 25 times your annual expenses is a good place to start.

Where To Save

Your emergency savings need to be readily accessible, so it’s important to keep those funds liquid. Opt for a high-yield savings account for your emergency fund, and either that or certificates of deposit for your safety net funds.

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

Remember Progress, Not Perfection

For some people, the idea of spending less than 50% of their income on housing costs and needs is impossible. Putting aside 20% (or more) for savings sounds great, but simply can’t happen.

And you know what? That’s ok!

The most important rule about saving is to start early and do what you can. Even if you just set aside 2% of your income this month, at least you’re saving. You can always build that up over time, increasing your savings rate as you cut expenses, pay off debt or encounter financial windfalls.

Make it a rule to pay yourself first by putting money into savings before you begin spending your paycheck. That way, you ensure that it happens each and every month. You can also automate your savings so it’s a hands-off process – the easier saving can be, the more likely you are to meet your goals. 

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Final Thoughts

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. But knowing where you stand today and where you want to be tomorrow can help you decide your path going forward.

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