Many people are asking themselves: how much should I save each month? We’re not talking absolute numbers, but a percentage of your income. How do you know that you are saving enough? Let’s get to the answer today!
When you’re looking to work towards financial security or financial independence, saving is how you will get there fastest. Setting aside money for your future goals is one of the basic requirements when planning for your future.
Knowing this is one aspect of the picture, but it’s a whole different thing to save regularly. Plus, understanding how much you should save exactly is another challenge altogether.
As always with personal finance, this is different for everyone as this depends on your situation. Every person has a unique position in terms of income, expense, and overall financial goals. So, these factors come into play when deciding how much you can and are willing to save regularly.
How Much Money Should You Save Every Month?
According to the 50/30/20 rule from Senator Elizabeth Warren, at least 20% of your income should be saved. 50% goes to needs, and 30% goes to wants.
Ideally, 15% of that 20% you are saving will go to retirement savings or investments. The remaining 5% should go towards you building your emergency fund or paying down extra on your debt (the minimum payment on your debt is not accounted for in the savings category).
This may be a good rule of thumb, but it’s not the entire story. If you want to know how much money you should save every month in more detail, read along!
Why Stick To The 20%?
If you’re sticking to the 20% savings of your income, this is an incredible amount to work towards financial independence. This will work best when you are in your 20s or 30s. That means you can still enjoy an early retirement if that is what you want.
This is a good rule of thumb to get started.
What Are You Saving For?
When you’re thinking about how much money you should save every month, you should also consider what you’re saving for. This highly depends on your financial goals.
You can save for:
- Short-term financial goals
- Long-term financial goals
Short-Term Financial Goals
Short-term goals can be anything from random acts of kindness, taking a lovely vacation, or saving enough for the holidays in December.
Anything that has a lifespan of under one year is considered a short-term goal. Whether you want to save $5,000 for a car or invest $3,000, that doesn’t matter. As long as you want to reach it in less than a year, it’s short-term.
When you know you want to save an additional $2,000 for your emergency fund in the upcoming 8 months, you know that you need to save $250 per month to reach that goal.
Long-Term Financial Goals
Long-term financial goals are goals for longer than a year. This can be something like remodeling your house, save for (early) retirement or getting married.
Whatever it is that you’re saving for, you need to save money in order to do it.
Working Towards Your Financial Goals
If you have several financial goals, it can be hard to reach your financial goals with a proper plan.
What gets measured gets managed.
When creating a list of your financial goals and making a plan for them, you are consistently measuring your progress towards your goals.
What you need to do:
- Make a list of all the goals you are saving for right now
- Write down how much you need to save for each goal (total)
- Write down the date you want to have that total amount
- Calculate the monthly amount you need to save for each goal
To clear things up, let’s run an example.
If you want to buy a $6,000 car in 12 months, you need to save $500 per month towards that goal to buy the car a year from now.
This is what you do with every financial goal that you have written down.
Yes, every single one of them.
Don’t worry when your goals exceed your monthly expenses. I did this a couple of months ago, and my desired savings ended up being bigger than my gross income.
Just calculate it. For now, we will tackle the problem that you’re not able to save that much right after that.
How Can You Boost Your Savings?
Increasing your savings can be the fastest way towards your financial goal. Below are ways to boost your savings.
Check Your Budget
Make it a habit to include your savings in your budget. Savings should be your top priority rather than spending. Also, check where your money is going so you know where to cut costs to save more. Knowing what you can save and what you need to spend regularly is an important balancing act for anyone. But if you can sit down and create a working budget for yourself, you are one step closer to boosting your savings.
Creating a budget that works for you will be a great help for you to track down your expenses. Sticking to this budget will help you monitor and manage the money flowing in and out, which will, in turn, help you in your financial goals.
Automate Your Savings
Automating your savings will help you prioritize adding to your savings account monthly. Setting up your paycheck to auto-deposit a portion of your salary will let you stay away from the temptations of spending it. At least, when you automate your savings, you are sure that they will be deposited right away into your savings accounts.
This is a very effective method of ensuring that you do not completely consume your income. It also guarantees that you only live within your means. So make it a point to set aside your savings and pay yourself first.
Take Advantage Of Extra Money
There are some instances where you get a pay raise and bonuses from your work. Instead of spending them, put them into your savings. The same as when you cut your expenses, the additional money you get adds to your savings.
Always look for ways to add more money to your nest egg. This will help fast-track your goals for financial independence. Additionally, putting more money into your savings earlier will provide you some wiggle room in the long run.
Look For Better Benefits
When applying for a job, always look for benefits that would help you save more like transportation allowance, clothing and food allowance, retirement savings plan, health, life insurance, etc.
Having this means that you will not have to pay for these things whenever the situation arises. This, in turn, means additional money that you can save and put into your nest egg. So make it a point to ask and do take advantage of these welcome bonuses in your work.
Check out the companies with the best benefits to see where you could apply to get that.
Start A Side Hustle
If you want to build your wealth as early as now, start a side hustle. Having this option and opportunity will add more to your savings. Aside from your day job, you can do side gigs in your spare time. Here are some suggestions:
- Food delivery with DoorDash or Postmates
- Freelancing like data entry jobs, proofreading, and online tutoring
- Get paid by walking and losing weight. Check our full HealthyWage review to earn up to $10,000 by losing weight.
- Sign-up with Swagbucks and earn extra income with survey sites. Check our full Swagbucks review.
- Sites that pay you to test websites
[Related Read: How To Start A Business Without Quitting Your Job]
What If Those Savings Are Not Attainable Right Now?
The first thing I want you to know is that this is very normal. This is your ideal life, and that takes time to get towards.
You must be checking your goals and checking whether or not these are all aligned. Try adjusting the overly expensive things that are negotiable. Buy a second-hand car, buy a smaller house, or spending a couple of thousands less on your dream vacation.
When you’re looking over your goals, realize that you want to make as much possible as you can within your current budget. Try to cut in the things that are not important to you and spend on the important stuff.
If you’re finished looking over your goals, check out if you can cut your spending. There are a million ways to save money.
A couple of ways to save money include:
- How I Live On Half My Income – And You Can Too!
- 7 Ways To Save Money Meal Planning
- How To Spend Less Than $70 Monthly On Groceries
- 25+ Incredibly Easy Money Saving Tips
- How I Cut My Utility Bill In Half
- 16 Alternatives To Cable TV (Cut Your Cable Today!)
Another way to make sure you can meet your savings goals is to get extra income to cover the additional expenses you are planning on making.
When you want to earn some extra money through a side hustle, here are some of my favorites:
- 15 Best Passive Income Ideas This Year
- How To Make Money Starting A Blog
- Start With Peer-to-Peer Lending For Passive Income Today!
Be Kind To Yourself
It is important to remind yourself: this is the end goal. This is not necessarily where I need to be today. It is something that I can work towards.
If you don’t have enough monthly savings to meet the financial goals you have made, that’s totally fine. Start with what you have right now and work your way up.
This can be done by saving money, as discussed above, by spending less on the things you don’t give much value to and spending more on things you absolutely love.
Once you are living more frugally and saving money, go for extra income. Start building your passive income or start a side hustle. This is a great way to increase the gap between your earnings and your spending.
One last reminder: if you’re currently paying off a lot of debt, you’re on the right track. The money you are paying off now is money that you will add to your monthly savings once that debt is fully paid off.
While investing may be daunting to most, it is important to get over your fear of the stock market and start investing!
Starting with investing is not as hard as most people say it is. Investing your first dollar is quite simple.
Investing will go a long way. Historically you will get a 7% average return on your investment. How great is that?! That’s certainly more than any bank is paying at this moment.
If you’re thinking about starting with investing, I would suggest:
- Vanguard – One of the biggest investment companies that facilitates all kinds of investments
- DEGIRO – A low-cost European broker that I’m personally using
- M1Finance – This is a US-based website that allows you to build your stock portfolio entirely for free. No fees involved!
Conclusion – How Much Money Should You Save Every Month?
There are so many ways to answer the question of how much money should I save every month? The general answer would be to follow the rule of thumb, save at least 20% of your income. This ensures that a constant amount is going to your bank account. The remaining 80% should be more than enough to address your expenses and other expenditures in your life.
But if you want to be more accurate and specific based on your financial situation, write down your goals and how much you will need to save monthly for them. This ensures a clear and detailed strategy to meet your financial goal.
Some people find this more personal and applicable to their lives as it considers the different factors in your life.
Regardless of which one you choose, what is important is that you save money regularly to meet your retirement goals. Sit down and realize what you want to achieve in your life.
Understand where you are in your life and your financial situation. Craft and choose a plan that suits you. Follow this plan carefully. Keep in mind always your end goal so you will be inspired enough to see this through. Good luck and enjoy the ride!
How much money do you save every month?