How Much Income Percentage To Save Every Month

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More than income or investment returns, your personal saving rate is the biggest factor in building financial security.

But how much should you save? $50 per month? 50% of your paycheck? Nothing until you’re out of debt or can start earning more money?

How To Save Money Every Month

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Whether you want to start saving money or get better at it, here’s some advice: How Much Should You Save Every Month? You may ask.

Pay yourself first. Each time you receive a paycheck, immediately sock some of it away for savings before you can spend it on other expenses. This budgeting approach is known as pay yourself first.

Automate. Control the amount and how often you save by automatically setting aside a portion of each paycheck.

“The 401(k) is a great place to start because you don’t have to do much,” Zigo says. “The company gives you the website. You just go in and click a few buttons and pick a percent to contribute.”

You can also set up automatic transfers to your savings account or IRA through your financial institution or a savings app.

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Talk to someone. A reliable friend, relative or financial advisor can help you figure out what’s holding you back and identify ways to move forward.

“People are suffering alone. Because of shame and embarrassment, and the feeling of being vulnerable, they’re not having conversations that they should be having,” Unverzagt says.

Hiring a professional can be expensive, but there are also ways to get quality free or inexpensive financial advice.

Audit your finances periodically. Circumstances change. So should your approach to saving money. As your income and expenses fluctuate, adjust your savings rate as needed.

How Much Should You Save Every Month?

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Many sources recommend saving 20% of your income every month.

According to the popular 50/30/20 rule, you should reserve 50% of your budget for essentials like rent and food, 30% for discretionary spending, and at least 20% for savings. (Credit for the 50/30/20 rule goes to Senator Elizabeth Warren, who reportedly used to teach it when she was a bankruptcy professor.)

I agree with the recommendation to save 20% of your monthly income. But it’s not always that simple to suggest the right percentage of income for YOU to save. Try the calculator below!

The 50/30/20 Calculator

If, for example, you’re a high earner, you’d be wise to keep your expenses low and save a much larger percentage of your income.

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On the other hand, if saving 20% of your income seems implausible, or even impossible at the moment, we don’t want you to get frustrated. Saving something is better than nothing.

But if you want a shot at being secure through old age – and having some extra cash for things you want – the numbers suggest that 20% is the number you’ll want to reach or exceed.

According to our analysis, assuming you’re in your 20s or 30s and Can Earn an Average Investment Return of 5% a year.

You’ll need to save about 20% of your income to have a shot at achieving financial independence before you’re too old to enjoy it.

Here’s the thing:

If you want to work like a dog every day until you die, maybe you don’t need to save all that much. Sure, you’ll still want an occasional vacation and something in an emergency fund in case your car coughs up a radiator.

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Beyond that, however, we save so that one day we no longer have to work for the money. For most of us, that day won’t come for many decades, but there are regular working people who reach it as young as 40 or even 35.

True financial independence means that you can sustain your chosen lifestyle entirely from your investments’ interest and dividends.

How Much Money Do You Need To Save To Do That?

Good question.

The simple answer: It all depends. It depends on whether you’re willing to live at the poverty line, need two homes and a sailboat, or fall somewhere in between.

It also depends on how well your investments perform. If you can earn an average annual return of 7% on your money, you can stop working with a lot less than if you only earn 3%.

For simplicity’s sake, we’ll use the common “4% rule”, which states that, theoretically, you could withdraw 4% of your principal balance every year and live on this indefinitely.

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That means that you’ll need to save 25 times your annual expenses to become financially independent. (If the math doesn’t shake out for you, remember 25 x 4 is 100, and 100% = your total balance.)

There are problems with the 4% rule, of course. For one, there are no risk-free investments that yield anywhere close to 4% today.

Sudden inflation could also become a problem. To account for this, and for simplicity’s sake, we’ll base how much you need to save based on your gross (before tax) income not your expenses.

In our example, we assume that you want to save 25 times your annual income, rather than your annual expenses.

By default, you’ll actually be saving more than you need (because once you’re financially independent you could stop saving).

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But when discussing your source of income for the rest of your life, it’s best to be conservative.

• Retirement
• Emergencies
• Everything else

Here’s a final rule of thumb you can consider: at least 20% of your income should go towards savings. More is fine; less may mean saving longer.

The chart below shows how long it will take you to amass 25 times your income based upon the percentage of your income you save.

( Assume a 5% average annual return to account for a more aggressive asset allocation while you’re saving.)

% of Income Saved	Time Required To Save 25x Annual Income
1%	100 years
2%	86 years
5%	67 years
10%	54 years
15%	46 years
20%	41 years
25%	37 years
50%	26 years
75%	21 years
90%	19 years

As you can see, by saving 20% of your income you’ll hit 25 times your annual income in just over 40 years.

That means a 30-year-old who starts saving today (assuming no prior savings) will hit this target by 71.

If you save less than 20%, it will simply take too long for your money to grow to a point where it will allow you to live off just interest.

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It’s not that scary, we promise!

Remember that you only need 25 times your annual expenses, not your income, to become financially independent.

The lower you keep your expenses, the sooner you’ll achieve your personal savings goal. Also, this  savings chart doesn’t take taxes into account.

Tax-Advantaged Accounts Can Help

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For simplicity, the chart looks at before-tax money going in, assuming that you’ll pay taxes on the money coming out.

But tax-sheltered retirement accounts like 401(k)s and IRAs change that equation for the better.

If you take advantage of these accounts, you can get away with saving 20% of your net, or after tax, income.

If you qualify for a Roth IRA, use it!

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Money you contribute to a Roth IRA now comes back to you tax-free when you’re older, so the more you save in a Roth, the less you’ll need to save in total because you won’t have to pay taxes on the Roth withdrawals in retirement.

Contributions to a 401(k) will also help ease the pain of reaching a 20% savings rate, according to a TIAA-CREF blog focused on Millennials.

TIAA-CREF assumes you can take advantage of at least a 5% match from your employer when you put money into a 401(k). This means you’ll really only need to save 15% of your paycheck.

Plus, if you are putting money into a 401(k), this money will be deducted from your paycheck before taxes which means that each dollar you deduct will save you some after-tax cash.

Let’s say you make $1,200 every two weeks. After taxes, it’s $1,000. Your savings goal should be 20% of net (after-tax) income, or $200 from every paycheck.

If you make a pretax contribution to a 401(k) of 5% of your paycheck and it’s matched by your employer. That means you put aside $60 from your check before taxes (and your employer kicks in another $60).

That’s $120 into your retirement account every month, and your after-tax paycheck is only reduced to $969.

You still owe yourself $80. You could put half into a Roth IRA for additional retirement savings and the other half to build up an emergency fund. What you do with it doesn’t matter as much as the fact that you saved it at all.

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This means, after all that saving, your take-home income is still $889 every two weeks, which is only about 11% less than your previous paycheck of $1,000.

By taking advantage of your employer match and pre-tax deductions, you managed to almost double your savings rate. Talk about bang for your buck!

Between pretax savings and employer matching, saving 20% of your paycheck gets a bit easier.

Don’t stress. Saving something is better than nothing.

I can already hear the shouts from the comments: “How ridiculous! I spend almost everything I earn, and on rent, food, and transport! This website is out of touch with its audience!”

Okay, okay. If the 20% scenario I just sketched out doesn’t fit your situation (which is going to be unique to you), then please don’t think that I’m saying you’re a failure or a chump.

As I said, we believe everyone should aim for 20%, not that everyone should hit that target on their first try.

Start small. Start with 1%.

When that doesn’t sting so bad, go up to two, or even three. Maybe you hit 5%, and that feels pretty good.

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Maybe you take a crazy leap for 10%, and that leaves you stressed and strapped, so you scale back. It’s a process, a literal give and take.

Through it all, keep that 20% goal in mind. It’ll keep you from getting complacent.

Whenever you get a raise, raise your saving rate! You were doing fine without that money before, and you shouldn’t miss it if you never get used to having it.

Finally, if you’re in debt, you might already be saving more than you think. That’s because paying down debt is essentially saving in reverse.

Think of it this way: One day, you’re debt-free. But you’ve been making big monthly payments to your debts for years. If you suddenly begin to save that money, what would your saving rate be?

If you can’t save 20% every month, another option is an app like Empower that automatically sets money aside for you. Empower is a financial technology company, not a bank. Banking services provided by nbkc bank, Member FDIC.

Opening an online savings account is a great way to start saving.  You’ll find some of the best rates online (vs. brick and mortar) and accessing your funds can be done from anywhere in the world.

• Marcus

Marcus by Goldman Sachs® provides no-fee personal loans & high-yield online savings for individuals. Committed to helping customers reach their financial needs.

• American Express National Bank

American Express offers world-class Charge and Credit Cards, Gift Cards, Rewards, Travel, Personal Savings, Business Services, Insurance and more.

How Much Money Should I Save Each Month?

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So, how much money should you save a month? Well, the amount of money you should save each month will vary widely based on your goals.

• Consider Your Life and Financial Goals

Before you choose your savings goals, take a look at your life goals. Consider the logistics around large purchases such as a luxury vacation or car.

Plus, think about long-term timelines for your big savings goals such as buying your first home or retirement.

Thinking about savings goals such as a luxury vacation or worry-free retirement can be exciting. But it can be difficult to break these long-term goals down to monthly savings.

• Consider An Emergency Fund

An emergency fund is one of the most important things you should consider when you ask yourself “How much money should I save each month.”

In addition to your other savings goals, it is important to build an emergency fund. In fact, an emergency fund could be the best place to start your savings.

• Consider Your Unique Situation

Of course, it might not be possible to hit a 20% savings rate in your current situation. And that is completely okay!

You should take a closer look at your finances and determine how much you can manage to save each month.

The goal of saving some money is much better than saving no money at all. Plus, every little bit adds up.

Even if you were only able to save $20 each week, that still leads to $1,040 in savings at the end of the year!

How To Save More Money Every Month

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Once you calculate how much money you should save each month and set your savings goals, you might need to make some changes to your habits to meet those goals.

Let’s take a closer look at some of the ways that you can save more money each month!

• Evaluate Your Priorities

As you start to save more, evaluate your priorities. You should not slash things out of your budget that makes your life enjoyable just to meet your savings goals. Instead, get creative with the spending that doesn’t make you happy.

• Try to be Frugal

Frugality can sometimes get a bad rap because people confuse being frugal with being cheap. Cheap means getting the lowest price possible, but frugal means aligning your spending with your values. Learning to be frugal can help you increase your savings without sacrificing the quality of your life.

• Earn More

If you are unable to cut any spending out of your budget, then the best option is to earn more. Luckily, your income potential is not something with a cap.

The first place to start is by asking for a raise at your current job. You might be able to negotiate a higher pay rate for the same amount of effort.

• Try a Savings Challenge

A savings challenge is a great way to motivate yourself to save more. As you go through the challenge, you might find that you are able to save more than you realized.

You might want to start small with our 90-day savings challenge. The goal is to save every $5 bill that you receive over 90 days.

With our challenge, you’ll have an accountability buddy that can help motivate you to stay on track. It can be surprising to realize how much you are able to save through this simple tactic.

Keep going! As long as you’re not depriving yourself today, it’s difficult to save “too much”.

Take the same advice we gave to those who are struggling to hit 20%: Test your limits, and try to increase them.

Building up strength (either physical or financial) takes discipline and consistency. As well as a willingness to listen to your body (or your bank account) when it tells you your current regimen is just too intense.

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But saving more is definitely a good idea.

Retirement experts say that the traditional recommendation of 15% of income is honestly too low to guarantee a comfortable retirement, and that 25% or 30% is a safer bet.

Also, keep in mind that if your goal is to retire early or someday leave a well-paying but high-stress job. Your savings rate will likely need to be 50% or more.

This may seem impossible. But it might give you pause when making major financial decisions like deciding how much house you can afford or what kind of car to buy.

The most important thing is to start saving. How much will vary from person to person, as well as from year to year. The best savings philosophy, in keeping with our sports metaphors, comes from Nike: Just do it.

Conclusion:

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If you are wondering ‘how much money should I save each month’ then you are not alone. Since saving money is an important part of your long-term financial well-being, it is a great idea to have a monthly savings goal.

Although it can be a challenge to increase your savings on a monthly basis, doing so can have a big impact on your financial future.

If you have a savings goal each month, then you are more likely to stick to a savings plan in most months.

Even if you don’t hit your savings goal every single month, it is a good idea to hold on to some of your monthly income for a rainy day.

The question remains: How Much Should You Save Every Month? Comment below.