Saving money can spare you stress and help you reach larger financial goals. There’s just one question: exactly how much should you save each month?
The right answer ultimately depends on your personal finances and outlook on savings. Keep reading for some tips to consider when making your monthly savings plan, so you can achieve all your money goals.
1. Prioritize Your Savings Goals
When you’re deciding how much you should save each month, understanding your money goals is a good place to start. Here are a few things you might be working toward:
- Saving for a down payment on a home
- Setting aside money for a wedding
- Putting cash away for your child’s future college costs
- Getting a head start on retirement planning
- Building an emergency fund or rainy day fund
Creating a set of goals is the first step. For many, creating an emergency savings fund is important in the event of a large unexpected cost popping up.
Once you establish your goals, prioritize them and figure out how much money you want to dedicate to each goal. Some people like using a bucket method. Each goal has its own “bucket” and you prioritize which buckets you want to fill first. Once one bucket (or group of buckets) is full, you move on to the next that’s most important to you.
If you have a certain amount of money to save each month, you might consider putting a larger amount of money into a big bucket and a smaller amount in a smaller bucket. The visual can be helpful for divvying up your cash.
2. Try Saving a Percentage of Your Income
An easy way to establish a monthly savings plan is by choosing a percentage of your monthly income to dedicate toward your savings. One of the most popular ways to use the percentage method is to follow the 50/30/20 rule for budgeting.
Here’s how it works. Take your monthly income and divide it up:
- 50% for essentials/living expenses (housing, food, utilities, etc.)
- 30% for discretionary spending (eating out, online shopping, etc.)
- 20% for debt repayment and savings (paying bills, adding to your savings account, etc.)
Dedicating 20% of your income to savings is a common choice, but it doesn’t work for everyone. For example, paying toward student loans or credit card debt might take up a big chunk of that 20%. So, if you can put a little more money toward that percentage, that might make room for more savings.
See how these percentages work for you and adjust them to make the best financial decision for your budget and money goals.
3. Invest in Your Future Self by Saving for Retirement
Whether you want to retire at 40 or you plan to work until age 70, you’re going to need some savings to live off of once you stop working. Here’s a really simple rule to remember about saving for retirement: time is on your side.
What does that mean? It’s simple: The sooner you start saving, the better, as you’ll have more time to capitalize on the power of compounding interest. This means the interest you earn on your interest. Your short-term savings contributions are helping work toward long-term goals.
Here are a couple of examples of how you can invest in your retirement:
- Take advantage of your employer-sponsored 401(k) plan. Typically your investment comes right out of your paycheck, which means you get a tax break. Better yet, some companies do employer match, matching your contributions up to a certain percentage.
- Open 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.
4. Take Advantage of Automatic Savings
Depending on your spending and savings account, you might have automatic savings features that can help you save money without even trying! Here are a couple of benefits to look out for:
- Save with each paycheck: You can dedicate a part of each paycheck to go right into your savings account. Chime has this with the Save When I Get Paid feature.
- Keep the change (in your savings!): Round up each purchase you make and put the extra cash in your savings. Chime has this Save When You Spend feature for every time you use your Chime Visa Debit Card.
- Interest-earning accounts: Some bank accounts also let you earn interest on your balance. So basically you’re getting paid just for keeping money in your account! Look at the interest rate to see how much you can make. For example, Chime’s Savings Account has a 2.00% annual percentage yield (APY)¹.
Try out different features and savings tools to figure out what gets you excited about saving.
5. Do What Works for You
From bucketing your money to experimenting with savings percentages, what’s most important is finding the savings strategy that works best for your financial situation. Your age, marital status, family responsibilities, life goals, and other factors can impact what amount of savings makes the most sense for you.
And be gentle with yourself. Things happen, both good and bad. Got a big raise or bonus? Set aside a little extra money for your savings. Lost your job or had to tap into your emergency fund, know that it’s okay to skip a month of adding to your savings.
With fluctuations in income and financial needs, it can be hard to predict everything. Being aware of your savings each month is a great step toward being able to handle the unpredictable and maintain long-term financial stability.
Monthly Savings FAQs
Still thinking about how much you should save each month? Keep reading for some related questions and answers.
What’s a good amount to save per month?
Many financial experts recommend you save 20% of your income each month. What works best for you might be higher or lower, and may change based on your current financial situation.
Is saving 10% a month enough?
Any amount of savings is better than nothing. However, 10% a month might not set you up to reach your long-term financial goals, especially after retirement. If you need to, start at 10% and work to increase by 1% as you can.
What factors impact monthly savings?
Studies about average savings take the following factors into account: household size, education level, home ownership, and age, among other factors. These can all impact how much you save each month.
Think about what these savings tips would look like for you. What do you think will help your financial independence? What makes you feel confident in finding a balance between what’s coming in and what’s going out? Keep in mind there’s no one-size-fits-all monthly savings plan. But, there are great tips that can get you started.