How much should you save a month? The simple answer to this question is: as much as you can afford. But if you want to grow your retirement savings faster, for example, 10 to 15% is how much of your paycheck you should save.
In fact, that is what recommended by most financial advisors who specialize in retirement planning. Let’s look how much money you should save every month for any goal.
Find out now: How to Save 100k: Money Saving Tips
How much should you save a month?
Many financial advisors recommend savers to adopt what is called the 50/30/20 rule when it comes to saving money each month. According to this rule, you spend 50% of your paycheck for the essentials such as your rent or mortgage, your utilities, and food. You spend 30% of your paycheck for discretionary spending. And you save 20% of your paycheck every month. So, 20% is how much of your paycheck you should save.
The 50/30/20 rule is highly recommended among experts. However, saving 20% of your paycheck each month is not that simple and it’s certainly not feasible for everyone. If you’re living paycheck to paycheck and barely making ends meet, it would be difficult, if not impossible, to save 20% of your paycheck each month.
Start saving no matter how small
If you cannot save that much money each month, do not lose hope just yet. You can start saving small, like 1% of your paycheck each month. Then you can work your way up to saving 5%, 10% and 20%. The goal is to start right away. As the saying goes: saving something is better than nothing.
So, if you’re ready to start saving little by little, try Acorns. Acorns takes your spare change from your regular transaction and save it and invest that change for you in a range of ETFs.
It rounds up all your transactions to the nearest dollar and takes the difference and invest it for you. While Acorns is not ideal if you’re saving for retirement, it’s a very good option for people to start saving and investing.
Click here to sign up for Acorns. They’ll also give you $5 just to sign up.
The case for saving as much as you can each month
While it’s a good idea to save 20% of your paycheck each month, it may not be possible for you. But that shouldn’t stop you from saving money each month. Not at all.
The idea here is to start somewhere, no matter how little money you can save per month.
Why is that important? Look at it this way: if the reason why you’re not saving money every month is because you don’t make enough of it, then you may never start saving money. And that works against you.
Every month that you’re not saving money, puts you a step back from achieving your goals. So, get started today by choosing a savings account and making your first deposit.
So, if you feel that you can’t afford to save 20% of your paycheck each month, I’m here to tell you that your options are not limited.
Indeed, there re things you can do to bring extra money home. Perhaps you can get a part-time job. What about asking your boss for a raise? Or starting a side hustle. This extra cash can be added to your monthly savings goals.
Where should you save your money each month: choosing the right savings account.
Part of saving your money each month is knowing where to put it. Under your mattress is not a good place. But an online savings account is the best place to park your hard-earned cash. The reason is simply because the interest rate is much higher than a traditional bank account.
CIT Bank is a good online bank, which offers a great interest rate of 1.85% APY for its savings account.
What are your savings goals?
How much should you save a month depends on your savings goals. What do you want to accomplish? Do you want to save 100k? Do you want to save the money for an emergency fund? What about saving for retirement? Are you saving for a down payment to buy a house?
So, how much to save really depends on your goals. And each savings goal requires a different analysis. Let’s dig a little bit deeper.
A) how much to save for retirement?
If you’re saving money so you can use it in your non-working days, then saving money each month can be made a lot easier. One reason is because you may have a long time to save. it also means that saving to reach your goals can be much faster thanks to tax-advantaged retirement accounts available to you.
Let’s say for example you want to accumulate $1 Million dollars in your account when you retire, a 401k plan can get you there very fast. That’s because tax is deferred, and you may get an employer match.
When it comes to saving for retirement, most financial advisors who specialize in retirement planning would recommend saving 10% to 15% of your monthly paycheck. Let’s say you save 5% of your paycheck and your employer matches another 5%, that’s already a 10% savings rate.
Of course, you can save more money each month. But be aware of the contribution maximum limit for a 401k. In 2019, it’s $19,000 if you’re under 59. The limit changes every year, so make sure you check the limit amount for the year.
If you’re not sure if your 401k or IRA accounts are doing well, Blooom can help you. Blooom is an online retirement management software that can help you grow your 401k or IRA accounts.
They will do a free analysis of your account and get you personalized suggestions on how to invest your current 401k in minutes.
B) Emergency fund: how much should you save each month?
If you’re deciding on how much to save for an emergency fund, you should save money that can cover 3 to 6 months of living expenses. 3 to 6 months of expenses is how much money most experts recommend you save for an emergency fund. However, the more money you can save, the better.
Your expenses include your rent/mortgage, utilities, groceries, and transportation. They can also include, entertainment, clothing, eating out, etc.
So how much to save for an emergency fund per month will depend on where you currently live and what your expenses are. It will also depend on your income, your debts (credit card debts, student loan, etc).
On average, you should save at least $1000 a month to save up for a $10,000 emergency fund.
C) How much to save for a house?
If you’re thinking of buying a house, then you will need to save money for a down payment. How much to save for a house each month depends on what kind of loans you’ll be eligible for. In other words, if you have a budget to buy a house for $450,000, how much you should save each month will depend on whether you’ll take an FHA loan or a conventional loan.
If you’re eligible for an FHA loan, then you will need to come up with $15,750. *By the way, to get an FHA loan you only need to come up with 3.5% of the home purchase price (other conditions apply).
Then to know how much you will need to save each month to arrive at $15,750, all you need to do is assign a target date on which you need to reach that goal. Once you have a target date, divide that $15,750 by that target date.
If you’re eligible for a conventional loan which requires 20% of the purchase price, you need to come up with $90,000. By the way you can come up with less than 20%. In that case, however, you will have to pay private mortgage insurance (or PMI).
To know how much money to save each month, just do the same math.
D) How much to save for college?
Figuring out how much to save for college per month? The first step is to figure out how much you’ll need. If you’re a parent, you might not plan to pay 100% of your kids’ college tuition. If you’re the potential student, you may inherit a 529 college savings fund that your parents may have set up for you. Either way, you need to know how much you will pay.
Once you have an idea of how much you’re expected to pay, use this college savings planner. It will tell you how you’ll need to save per month to reach your goal.
E) Everything else: How much money to save each month?
As mentioned above, your much money to save for each savings goal will vary. For example, how much should you save to buy a car won’t be the same for saving a house.
So the best way to save money each month to reach any goal (whether is buying a car, a computer, a house, to start a business, to remodel a kitchen, etc.) is 1) to write it down, 2) assign it a target date, and 3) figure out how much it will cost you.
Let’s take an example. Let’s assume that you’re saving money for a dream vacation in Hawaii. And the money needed is $15,000 (Hawaii is not cheap).
Let’s say you want to reach that goal in 12 months. What you need to do is to divide $15,000 by 12 (15,000 % 12 = $1250). So, $1250 is how much money you need to save each month to reach your goal.
If $1250 is too much to save per month, then prolong your target date to one more year.
Additional tips to save more money
Deciding how much you should save each month for a goal, especially if it involves big numbers, can be overwhelming. But don’t worry. We’re here to help. Here are some additional tips to save money.
1) Never too little to save.
If you feel that you don’t have enough money to save each month. Think again. Your options are not limited. Even saving as little as $25 each month will leave you with $300 at the end of the year. Try Acorns. Acorns will save and invest your spare changes for you. Plus, they will throw in $5 just for signing up.
2)Start saving now.
No matter what your circumstances are, you should start saving now. The sooner you start, the sooner your money will grow. Thanks to compounding interest. So, don’t wait until your next raise or next raise to start saving each month. Waiting means never getting started. Choose an online savings account and make you first deposit today.
3) Automate your savings.
It can be very easy to forget about saving money each month, especially if you’re not used to it. So, set up a savings plan so that your money can be withdrawn automatically from your checking account to your savings account on a regular basis.
The key here is consistency. No matter how much money you’re saving, if you do it each month, you will be able to reach your savings goals.
To recap, when it comes to knowing how much you should save a month, it depends on your savings goals. But whatever your savings goal is, you should save as much as money you can afford.
Trying to figure out how much you should save each month? To be in good shape, you’ll need to save as much as you can each month. But if you want to grow your savings goals faster, the percentage of your paycheck you should save each month is probably 20% or more.
Speak with the Right Financial Advisor For You
Still wondering how much you should save a month? You can talk to a financial advisor who can review your finances and help you reach your saving goals (whether it is making more money, paying off debt, investing, buying a house, planning for retirement, saving, etc). Find one who meets your needs with SmartAsset’s free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.