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How Much Should I Save Each Month?


If you’re establishing a budget, you need to figure out how much you should stash away. There are a few popular strategies you can use to determine how much to save per month. Let’s break down how much you should be saving each month for retirement, emergencies and other financial goals.

A financial advisor can help you create a financial plan for your needs and goals.

Save for Multiple Timelines

The common guideline is you should try to save 20% of your earnings each month. That 20% is divided over your savings account, as well as your retirement savings, such as a

401(k) or IRA.You should think of your savings over multiple timelines. After all, you don’t just save for one thing. First, you have your long-term retirement savings. Ideally, you should be saving 10% – 15% of your income towards retirement. This is a savings that ideally grows over decades, taking full advantage of compounding interest.

The next timeline you should consider is the emergency timeline. Think of this as over the next five to 10 years. You never know when you’ll need to pay for a car repair, replace a major home appliance or need a safety net if you lose your job. Having income saved from four to six months will help you navigate these emergencies when they arise.

Finally, your next major timeline should be a short-term savings or a specific purchase savings. This is what you save on top of your retirement or emergency accounts, and could be for anything from a down payment on a house or a car to saving for a vacation.

The 50/30/20 Budget Rule

SmartAsset: How Much Should I Save Each Month?

If you’ve been researching savings, there’s a chance you’ve come across someone talking about the 50/30/20 budget rule. This is a simple approach to budgeting that splits your income into three categories: needs, wants and debt/savings.

According to the 50/30/20 budget rule, 50% of your income should be allocated to needs. These include housing, utilities, health insurance, transportation and other essentials. Hobbies, entertainment and dining out should make up a maximum of 30%, while 20% should go to paying debt and savings.

While this rule indicates 20% to be used on savings and debt, you should note that not all debt is alike. Lower-interest debt, such as a mortgage or some student loans, could fit in the 50% category and be paid down over time. However, high-interest debt, such as credit card debt, should be prioritized to be paid off due to its growing nature.

Calculate What You Need for Retirement

Another approach is to figure out how much you want to have for retirement and backtrack to how much you should save monthly. For instance, a lot of people want to save a million dollars for retirement. Whether this will be enough depends on what age you plan on retiring and the cost of your retirement living.

If you decide a million is your goal, you can use our investment return and growth calculator to figure out how much you need to save every month. For example, let’s say you’re starting with $10,000 on a 30-year timeline. You expect to see a 7% average return. This means you’ll need to save around $755 a month to hit $1 million.

But what if you need more than that? Using our retirement calculator, you can input your zip code, your current savings, your current income and the income you expect to live off of in retirement. When you account for everything, you can more accurately determine how much you’ll need to have saved.

Cut Expenses and Increase Income to Save More

While it’s important to save plenty and save early, not everyone has that option. You need to be realistic. If you find you’re having trouble saving despite budgeting, there are two big things you can do: raise your income and lower your expenses. For raising your income, you can try to get a raise, a promotion or a new job. You can also look into side hustles to grow your savings.

In terms of cutting expenses, think about the big chunks that are eating into your budget. If you make $100,000 a year, but you’re spending $3,500 a month on rent, saving 20% is going to be hard because your expenses are high. If you’re missing savings, consider downsizing major expenses. This can look like moving to a less expensive area or getting a more affordable car.

At the beginning of your career, you’re most likely to have a lower income. But don’t let this hold you back from saving. Especially with stock market investments, getting in early means you can take advantage of compounding growth. If your investments match the 10% growth of the market over time, your early investments hold the highest growth potential.

Bottom Line

SmartAsset: How Much Should I Save Each Month?

Strong savings will help you reach your financial goals and keep you safe in case of an emergency. In general, saving at least 20% of your income is a good rule of thumb to start with. Following guidance like the 50/30/20 rule and calculating how much you need for retirement are great ways to get there.

Tips for Saving

  • Consider working with a financial advisor to come up with a financial plan. A financial plan will evaluate your current situation and outline the steps to take to achieve your future financial goals. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Normal savings accounts offer paltry interest. That’s why you should look for a high-interest savings account. Use our list of top savings accounts to compare savings accounts’ interest rates and see where you can earn the most with your rainy day fund.

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