How Much of My Salary Should I Save?

By Melanie Lockert
March 31, 2018

You get your first real adult job — and finally, have a salary with benefits. Score!

At long last, you’ve got consistent money coming in and can worry a little less about money. But deep down inside, you also know that you can’t just go blow your newfound money like the zombie apocalypse is coming. You know you should keep some of it too. This leads to the next conundrum: “How much of your salary should you save?”.

Read on to learn more, plus get our tips on how to save money from your salary.

What you need to do first

Before we answer the burning question “How much of your salary should you save?” there’s an important thing you need to do first. And that is: look at your after-tax salary.

When you first think about how much you now earn, you probably think you make the same amount that your human resources department told you about in your initial employment letter. While this may technically be your salary, this isn’t the actual amount of money that you get after taxes and other expenses are deducted.

For this reason, it’s important that you plan to save a certain percentage or amount of your after-tax salary – as this is the true amount of cash that comes into your bank account.

The easiest way to find out how much you take home every paycheck is to look at your pay stubs. This way you’ll get an immediate idea of what you’re really working with.

How much of my salary should I save?

There is no one answer to the question “How much of your salary should you save?” Why? Because this varies depending on your goals, how much you’re making, your expenses, the cost of living in your city, and your debt.

For example, if you’re earning six figures but you also have racked up six figures in debt, it can be tough to save. Conversely, you may earn a modest salary, yet you can potentially save more if you’re debt-free and living in a low-cost area.

All things considered, you may want to start by saving 20 percent of your salary – knowing that you can always adjust this. If you save 20 percent of your salary, you can then build a cushion to fund any unexpected emergencies and save for your retirement.

Of this 20 percent, consider saving half of it – or 10 percent of your salary – into an emergency fund. You can then put the other 10 percent toward your retirement account. If your employer offers a match, you can also contribute a bit less as you’ll be earning more through the match.

Once you’ve saved up six to 12 months’ worth of expenses in your emergency fund (the amount financial experts often recommend to cover emergencies), you can put more toward your retirement, while also saving for goals like traveling, buying a house, and purchasing a new car.

The key to saving money is to factor in all of your possible expenses, both right now and in your future. If you can save more, by all means do so! The 20 percent is a benchmark, not a prescription. On the other hand, if need to lower the amount you save due to your current expenses and income, then go ahead and save less. Just make sure you save something.

Tips to start saving

Ready to start saving?

The best way to get started is to set up automatic contributions after each pay day. For instance, you can automatically save a percentage of your after-tax pay from your paycheck and divvy it up to your emergency fund as well as your retirement account. Automating this task can help you stay on track and stop making excuses.

On top of saving part of your paycheck, you can also use Chime’s Automatic Savings program to help you effortlessly build your savings. This feature helps Chime users automatically save every time they make a purchase by rounding up transactions to the nearest dollar. Not only that but you can automatically save a percentage of your paycheck, too.

Besides automating, you may also want to lower your expenses and boost your income to help augment your savings. You can do this by smart budgeting and taking on a side hustle to help you reach your money goals.

Remember: saving is like building a muscle. It takes practice and work but with consistency, you can stay strong.

Bottom line

Knowing how much of your salary to save is more of an art than a science. It can change person to person, depending on the situation. But if you can afford to do so, try to save at least 20 percent. This way, you’ll have enough money in the bank to cover your needs and wants. Whether you want to save to pay for unexpected expenses, travel the world, buy a new house, or retire early – your savings can help you achieve these goals.

Melanie Lockert is the founder of the blog and author of the book, Dear Debt. Her work has appeared on Business Insider, Time, Huffington Post and more. She is also the co-founder of the Lola Retreat, which helps bold women face their fears, own their dreams and figure out a plan to be in control of their finances.

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