How Much Should You Save Each Month?
How much you should save each month depends on your income, expenses, and savings goals. Many financial experts recommend the 50/30/20 budget rule as a good start.
By Megan Doyle | American Express Credit Intel Freelance Contributor
6 Min Read | February 1, 2022 in Money
When you save money, you’re playing the long game. Since the idea is to set you up for a future of financial success, it’s important to start early.
How much you should save each month depends on your personal financial situation, but the 50/30/20 budget rule is a good guideline to get you started.
Making a list of your savings goals – and creating a budget – can help you nail down your monthly savings.
Saving can be intimidating. Admittedly, it took me way too long to open a savings account because I never thought I had enough money in my budget to start. But one day I decided to just do it. I started by setting aside 2.5% of every paycheck and within a year, I realized I could readjust my budget and save 35% of my income – that’s a 1,300% increase! So for me, saving quickly went from intimidating to inspiring.
But not everyone can – or needs to – save 35% of their income. So how much should you save each month? The simple answer is as much as you can. The complicated answer is that it really depends on your income, expenses, and savings goals.
Here are some guidelines to help you figure out how much you should be saving each month – and how to start making your savings dreams become a reality.
A common guideline for savings is the 50/30/20 budget rule. Here’s how the Consumer Financial Protection Bureau breaks that down:1
- 50% of your income goes to your needs, like housing, utilities, and food.
- No more than 30% of your income can be used for discretionary spending, or wants.
- At least 20% of your income is devoted to savings and debt payments.
So, if you make $5,000 a month – which is slightly below the median U.S. household income – and strictly follow the 50/30/20 rule, you’d set aside:
- $2,500 for needs.
- $1,500 for wants.
- $1,000 for savings and debt.
But that breakdown isn’t always possible, and it’s not always right for everyone. You might only spend 40% of your income on essentials, leaving more room for discretionary spending and saving. Or maybe you live in a costly city area and spend closer to 60% on essentials, meaning you’ll have to lower your discretionary spending if you still want to save at least 20%.
In other words, consider the 50/30/20 rule as more of a rough guideline to help give you an idea of how you can allocate your income responsibly.
The 50/30/20 rule can be a great start, but to really understand how much you should save each month it’s a good idea to figure out your savings goals and make a monthly budget.
- Make a list of everything you want to save for. Ask yourself what you know you’ll want to save for throughout your life, short-term and long-term. Financial experts generally recommend that it’s most important to save for retirement and emergencies, so that’s a good place to start – more on those later. Otherwise, if you have a dream car or vacation on your mind, write it down. If you want to own a home or have a lavish wedding, write it down. You might also want to set aside savings for new gadgets and appliances, repairs, and maybe even holiday gifts. No matter what you’re saving for, it’s a good practice to get an idea of how much you’ll need to save, and by when, so you can hold yourself accountable.
- Make a monthly budget. Once you know what you want to save for, you can make a monthly budget to figure out how to set aside your income in a way that’s most effective for your needs. For example, instead of saving for all of your life goals at once – which can be overwhelming – you might want to break it down into manageable chunks and start with the most important things first, like retirement and emergency funds.
Many financial experts agree that the two things everyone should save for are retirement and emergencies. Again, how much you’ll need to save each month depends on your goals and needs, but here are some rough guidelines to get you started.
- Retirement savings are typically held in tax-advantaged retirement accounts like Individual Retirement Arrangements (IRAs) and 401(k)s. There are online calculators that can help you determine exactly how much you should save by your target retirement date, but financial experts generally recommend saving at least 10-15% of your income in order to have enough money to maintain your lifestyle in retirement.2 For more on retirement savings, read “How to Start a Retirement Fund.”
- Emergency savings can help you manage your finances when life throws unpredictable expenses your way. The standard rule of thumb is to save three to six months of your essential expenses – so if you have $2,500 of essentials a month, you should aim to save at least $7,500 to cover a few months without employment, or any other unexpected financial hurdles like car repairs or medical bills. If you’re starting from scratch and want to build up a $7,500 emergency fund in a year, you’ll have to save $625 a month. That might seem like a lot, but remember it’s okay to start small – the most important thing is to get started. For more on building an emergency fund, read “How Much Should I Have in an Emergency Fund?”
Beyond retirement and emergency savings, it’s a good idea to set aside money for other savings goals or projected expenses so you can take on less debt – if any – when you need to make a major purchase or payment. Once again, how much you should save each month depends on your savings goals. For example:
- If you want to make a $100,000 down payment on a house in 10 years, you’ll have to save about $900 a month. If you go 50/50 with your spouse or partner, however, you’ll each have to set aside about $450.
- If you plan to make a $10,000 down payment on a new car in 5 years, you’ll have to save about $170 each month.
- If you’re planning a $4,500 all-inclusive vacation in two years, you’ll have to save about $190 a month.
But remember: It’s a good idea to first focus on your retirement fund, emergency fund, and any debt you have, especially if it’s high-interest debt. Setting yourself up with a good financial foundation can help you succeed later on – after all, saving is all about playing the long game.
Here are some tips I’ve found useful to help save more each month:
- Automatically deposit funds from your checking account or paycheck into your savings account.
- Put all or part of your tax refund into savings.
- Save any windfall money, whether it’s a bonus, a lucky lotto ticket, or an inheritance.
- Eliminate unnecessary expenses. Are you subscribed to a streaming service you no longer use? Can you get a lower premium by switching car insurance providers? You might be surprised how much money you can save by spending more mindfully each month.
- Pick up a side gig, even if it’s just babysitting or dog-walking every other week.
Personal savings are as subjective as all things personal finance, so it’s no surprise that how much you should save each month depends on your own financial needs and wants. But guidelines like the 50/30/20 budget rule can help you get an idea of how to allocate your income for financial success now and in the future. And if you want to take it a step further, it’s a good idea to make a budget based on not only your needs, but what you want to save for, how much it’ll cost, and how long it’ll take. That way, you can hold yourself accountable and make sure all your saving goals are met in time.