If you’re like most people, you probably strive for financial security. One of the top ways to achieve this is to save as much money as you can. This now begs the question: how much should you save each month?
Should you save $100 each month? Should you put away a percentage of each paycheck? The answer really depends on you and your individual situation. And, while there is no golden rule, we’ve got some tips to help you save money and achieve your financial goals. Read on to learn more.
Consider your goals when choosing an amount
When you’re deciding how much you should save each month, it’s important to first consider your goals. Depending on what stage of life you’re in, your goals may include saving up to buy a house, socking money away for a vacation, or saving for your child’s college fund.
Remember: saving money isn’t just about having a comfortable retirement account or an emergency fund that helps you rest easier at night. Your savings are also meant to help you pay for some of life’s big milestones. Not only this but your short and long-term goals can have a direct impact on how much you save each month.
To get started, think about the things that are important to you right now. For example, are you and your significant other thinking about getting married? If so, you might want to save for a wedding and honeymoon. Or, maybe you just had a baby. Setting up a college fund might be on your to-do list.
Saving a percentage of your income
If you consider yourself disciplined when it comes to budgeting, you may want to save a percentage of your income rather than a particular amount.
One of the more popular ways to accomplish this is to follow the 50/30/20 rule and allocate your income into three different areas. The biggest chunk, 50 percent, will go toward your basic living needs. This includes things like housing and food. The next 30 percent can be used for discretionary spending, which may include a day of shopping or a night out with friends. The remaining 20 percent goes toward your financial needs, which can including debt repayment or savings.
So, is 20 percent the perfect amount to shoot for when saving money each month?
For some, it probably is. But it’s not going to work for everyone. If you’re fresh out of college, for example, there’s a chance your budget is tight. This means saving 20 percent may not be easy for you. Instead, save a percentage of your income that fits within your budget.
On the other hand, you may be able to save more than 20 percent. If you fall into this category, you may want to try saving 20 percent into a savings account and putting the remainder into other types of investments.
Invest in your future self
The sooner you start saving for your retirement, the more money you’ll have saved up when the time comes to enjoy your golden years. For this reason, you should start saving money into a retirement account as soon as possible.
The easiest way to do this is to take advantage of your employer-sponsored 401(k). Typically your investment comes right out of your paycheck – pre-tax. Better yet, some companies match your contributions up to a certain percentage, and this is free money.
If your company doesn’t offer a 401(k) or if you’re a freelancer, you can still save up for your retirement by opening an individual retirement account (IRA). There are many different types of IRAs so it’s important to do some research and find the best retirement savings vehicle for you.
Pay yourself first
No matter if you decide to use the 50/30/20 rule or set aside a different amount for savings, you should pay yourself first. This means that before you do anything else, make sure you set money aside for savings.
In fact, one of the reasons why 57 percent of Americans have less than $1,000 in savings is that they are used to paying themselves last. Once the month is over and their bills have been paid, they then focus on themselves. Most of the time there isn’t much money left over.
You may now be wondering how to go about paying yourself first. It’s simple.
To get started, sign up for a bank account that will help you automate your savings. For example, you can open an account with Chime Bank and enroll in the Automatic Savings program. Each time you make a purchase with your Chime debit card, the amount will then be rounded up to the nearest dollar. This amount is then deposited into your savings account. To take it a little further, you can also transfer 10 percent of your paycheck into your savings each time you get paid.
Where there’s a will, there’s a way
It’s no secret that many Americans struggle to save money. But with a little education and some hard work, the script of that story can easily be changed.
By following the tips above, you’ll be soon on your way to saving money each month. Are you ready to get started?