Many Americans live paycheck to paycheck, so if you’re feeling stressed, you’re not alone. The thought of having to save money can be overwhelming, especially when your monthly paychecks are already allocated to several different payments and bills.
The most popular and widely used suggestion is to save 20% of each paycheck, whether that’s weekly or bi-weekly. The challenge is sometimes figuring out how to save money, while still covering your basic living expenses and trying to pay down debt. Let’s take a look at some realistic expectations you can set for yourself and the steps you can take to get started.
In This Article
How Much to Save Every Month
If you are trying to figure out how much you should save from your paycheck each month, there are several different formulas and budgeting tools to use, with the most popular being the 50/30/20 rule. This suggests you should intend to save 20% of your monthly income or every paycheck. This rule advocates putting 50% of your income toward your essential expenses each month, spending 30%, and then saving the remaining 20%.
Again, while there’s no right answer for everyone, there are guidelines you can follow to help you decide how much to save, and this is one of them. Ultimately you want to save as much money as possible, for things like retirement and bigger life purchases. But you also want to keep in mind having some cash flow leftover to have a little fun with today. This way, you aren’t restricting yourself and falling back into a bad spending routine.
How to Save Money From Your Paycheck
If you’re looking for tips on how to save money, you’re in the right place. Take a look at 5 strategies that can help you save money from your paycheck every month:
1. Break Your Paychecks Down
First things first, go over your paycheck to see how much take-home pay you have to work with. Your take-home is what’s left after your employer takes out taxes, insurance, and any other deductions, like 401(k) plan contributions, from your salary. Once you are able to get a visual of how much money you actually have from each paycheck, you can start to break it down and divide the funds more accurately.
2. Evaluate Your Budget and Expenses
If you’ve been struggling to save so far, this is where you’ll need to dig into your budget to see where you may be able to free up extra cash.
For example, one of your biggest budget expenses may be food. If you’re dining out a lot, you could look for money-saving hacks to cut down on the cost. Try planning your meals for the week based on sales and shop with a list you’ll stick to. You can also use coupons and cash back apps, and create a menu for each week to eliminate food waste. You can continue to eat a healthy diet while working with more of a budget.
Other expenses you may want to assess include utility bills or subscription services you don’t use. You could also find savings in your budget by switching to a bank account with no monthly fees.
3. Minimize Debt Expenses
Consider how you can make your debt payments less expensive. Refinancing student loans, for example, can help you get a lower interest rate. This can also lower your monthly payment and save you money in the long run, ultimately giving you more money in your budget to save. The same is true for transferring high-interest credit card debt to a balance transfer card with a 0% introductory promotional rate.
4. Find Ways to Earn Extra Cash
If you’re falling short of your savings goal, maybe it’s time to try and earn more money. If possible, apply for a second job, even if it’s a few extra shifts a week. You can also do things like sell your old clothes, or turn one of your passions into a side hustle that can bring in additional income.
5. Set Up Automatic Transfers to Your Savings Account
Once you know how much you need to cover your bills and expenses, you can set money aside from your paycheck to put toward your savings.
There are two simple, yet highly effective ways to do this:
- Set up direct deposit into your savings account from your paycheck. This way, the money goes straight to savings every payday without having to think about it.
- If your employer doesn’t offer direct deposit, you can set up an automatic savings transfer from checking to savings each time you’re paid. You just choose the amount to save and the frequency you want money transferred and you’re done.
These two savings hacks can also be a great way to build your emergency savings fund or add money to savings for a long-term goal, like a down payment on a home.
Where to Put That 20%: Monthly Goals to Work Toward
Now that you know how to save 20% of your paycheck every month, here are 2 great places to start putting that money to achieve financial success!
Your Savings Account
Every person’s financial circumstances are different, so it’s tough to compare savings accounts with other people. A good rule of thumb is to have 3 to 6 months of living expenses saved in case of the loss of a job or emergency. However, outside of that goal, how much you have in your savings is unique to your lifestyle and personal spending habits.
It’s a great idea to start with setting smaller goals for yourself. If you are new to saving, aim to save an extra $1,000 every year, just to have, outside of your emergency fund. If you’re looking at it from the 50/30/20 savings recommendation, you will most likely have more saved by the end of a year.
Try not to get down about falling behind, and instead work toward trying to learn more about money and where you can save. These are great tools to start with, but keep in mind, the ultimate answer for how much to save monthly comes down to how much you’re taking home, what your expenses are, and how much, if anything, you’re paying toward debt.
Your Retirement Account
Saving for retirement is something a lot of young people don’t think about since it seems so far away and insignificant at the moment. But, the sooner you start saving for retirement, the better off you’ll be down the line. The earlier you get started, the longer your money will have to grow.
Many experts recommend saving at least 15% of your gross annual income (that includes an employer match) for retirement. More is even better, if you can swing it. If you can’t save 15%, save what you can — even if it doesn’t seem like much now. At a minimum, try to contribute enough to get your employer’s match if they offer one. Otherwise, it’s like giving away free money. As your income grows or you pay off debt, you can increase the amount you save.
If your employer doesn’t offer a retirement plan or you want to start a separate retirement account outside of work, consider opening an IRA. And if you’re self-employed, check out solo 401(k) options.
Years down the line, you’ll be grateful for your generous retirement savings. You can also set up automatic payments from each paycheck to ensure you’re setting your future up for success.
What if I can’t save 20% of my paycheck?
For those living paycheck to paycheck, saving 20% of their salary sounds impossible, and this might well be the case. If you can’t reach the industry benchmark, you might feel like giving up completely. But remember: Saving something is better than saving nothing.
If saving is a struggle, commit to setting aside 1% of your paycheck after taxes. Yes, just 1%. For example, if your paycheck after taxes is $2,300, you’d save $23 each month. Even this relatively small amount will, over time, help you break the cycle of living paycheck to paycheck and provide a financial cushion in case of an emergency or unexpected expense.
Where should I keep my savings?
Different savings goals may fit different savings accounts. For short-term savings goals, consider keeping your money in a high-yield savings account to help maximize your contributions while remaining flexible, if you need the funds in a pinch.
Ready to start building your savings even faster? Open a High-Yield Savings Account today with Chime. Chime offers a high-yield savings account to help you make your money grow faster, with a 8x¹ higher Annual Percentage Yield (APY) compared to traditional banks.
How much money should I put toward investing each month?
If you find yourself with some extra dollars leftover after your expenses and savings are taken care of, you may consider investing those funds. Low-risk investments, index funds, and bonds are a few investment options to explore. Before making an investment, evaluate which option could benefit you and your bank account most in the long run.
There’s no specific amount you should worry about putting toward investing. Focus on your savings goals first, and then add investing once you feel comfortable with what you have put away.
How much does the average American have in savings?
According to ValuePenguin, “American households had a median balance of $5,300 and an average balance of $41,700 in their transaction bank accounts in 2019, according to data collected by the Federal Reserve.” Again, don’t take these numbers too seriously, as every individual’s financial circumstances differ, and it’s best to concentrate on the money you are bringing in and the steps you can take to save it each month.
Saving money can be scary, however, don’t let it derail you from making smart choices with your paychecks. You earned that money! And you deserve to make the most of it. With just a little bit of planning, you can start saving like the pros and arm yourself with the finances to offset any of life’s little surprises.
Even though saving can sometimes be hard to start, it’s one of the key factors for living a stress-free lifestyle, especially when it comes to money. Whether you’re saving for future purchases like a house or a car, or focusing on your retirement funds, your savings is what is going to get you there.