Are you looking for a set answer on how much you should save every month?
The truth is that there’s a wide variation of this depending on your specific situation.
Now, the base answer is that you should be saving at least 15-20% of your income, but this will also be broken into different categories.
For example, 10-15% of your savings should go to retirement accounts. The rest should go toward emergency funds, savings accounts, and debt payments.
But there’s more to it than just that.
How Much Do You Need to Save?
Saving money is something that most people do after they’ve paid off everything else. Instead of being the first thing that they do it’s actually the last thing that they do.
But saving money first is the best way to make sure that you have some at the end of the day.
You should be putting 5-20% of your income into savings before you even spend any of it.
That way you automatically save and you can’t spend any money that should be going to savings. You’ll know that you are already on a good path for yourself.
Here are the most common methods to consider:
1. 50/30/20 Rule
If you’re not sure how to get started saving try out these methods. With this version you actually save 20% of your money (or put it toward debt) every month.
This budget says that you put 50% of your household income toward your necessities and expenses like your home, car, and food.
You then put 30% toward the things that you want, like going out to eat or the movies, and the remaining 20% goes to debt and savings.
That way you can make sure you’re paying off the things you don’t want hanging around.
Another option is to put at least 10% of your money into savings right away.
You actually take a look at your total income after taxes and deductions. Then you calculate a total of 10% of that amount of money.
That’s the amount that you send to your savings account and it should be sent there before you pay anything else.
If you bring in $1,500 you should then put $150 toward your savings, before you do anything else. Keep in mind that this is just a starting point and you should be trying to increase this as much as you can.
Why 10% Is Not Enough?
10% used to be considered a good amount for your retirement savings, but we now know that it just isn’t enough.
Consider someone who saves $5,000 a year with a $50,000 salary.
If you start saving at 30 with an expectation to retire at 65, how much money would you have?
If we assume 5% annual returns (which aren’t guaranteed) and an employer match of 50% for half of what you have you’re off to a good start. If you estimate 3% raises each year and subsequent increases to your contributions you’d have $850,000.
Now, that may sound like a lot of money, but when it comes to inflation and all the things you’re going to need to pay for after you retire you’re at about $400,000 of money and you’re not going to get very far on that.
You’re going to need a lot more money saved away.
Of course, you’re the one that has to decide how much money you’re going to need in retirement, but it’s better to aim high then to find yourself struggling later on, or having to get a job after you retire.
Saving at least 20% of your money is going to be a good way to go and set you up for a better life that you can enjoy.
Keep in mind that every little increase that you may can help you retire a little earlier or it could help you have a little bit nicer lifestyle once you do retire.
Where to Save Your Money?
The next question many people have is where to save their money or where to put the money that they have earmarked for saving.
If you have a high-interest debt then it’s important to pay this off before you do anything else.
You’re going to be spending a whole lot more in interest than you will earn on your savings so make sure that you put this ahead of anything else you’re doing.
Next up, you need to make sure that you’re putting some money away for your own retirement.
You should save around 15% of your income, but whatever you can put away is going to be better than nothing, so put at least as much as your employer will match (and max out that match).
Remember that your goal is to get up to 20% of total savings, but that doesn’t mean all of that needs to be in the form of retirement. The rest should go to other types of savings accounts so you have some money left over if you need it.
Make sure you’re signing up for automatic contributions if your company offers them.
That means you don’t have to worry about depositing the money. It gets taken out of your paycheck before you even see it. That gets you used to not having the money.
For those who don’t have retirement options at their place of work make sure you create one somewhere else and still try to set up automatic payments and transfers so you don’t have to do it manually.
These are crucial because in the event of an emergency you might otherwise find yourself using your credit card or borrowing against your house or retirement savings.
Those are going to hurt you financially in a number of ways, so create a bit of a savings buffer in case you need it later on.
If you have children or if you’re planning to go to college you should start saving for this right away. The more you can save the better it’s going to be for the entire family.
But keep in mind that saving for your own retirement is going to be even more important. You can’t borrow money for retirement, but you can for college.
Also, encourage your child to start saving for their own college education as soon as possible. Even a little bit at a time is going to make a big difference later on down the road.
If you really want to buy something special you should also have an account prepared for this.
Make sure that you’re doing everything you can to put money toward your retirement and your savings first and then start looking at other goals that you might have and how you’re going to pay for those as well.
Prioritize the goals you have and then create a fund that will help you get there.
4 Awesome Ways You Can Save
If you’re struggling with just how you can actually save the best thing to do is take a look at some of these options and see if they can help you.
You might be surprised at just what you can do with your money if you’re doing it right.
1. Put a Purpose to It
The first thing is to put a purpose to your savings.
Just saving, in general, doesn’t excite most people and you find yourself struggling to keep up the motivation.
If you have a goal and a plan in place it can change your mind about saving however and you might be more interested in the process.
Just make sure you’re trying to put away money for your retirement and then that you’re putting it away for something fun and exciting. You’ll be more willing to make sacrifices this way.
2. Set a Budget
Okay, a budget isn’t exactly exciting, but you can absolutely create a great budget and then stick to it a whole lot easier.
If you do, it’s going to be a lot easier for you to save money and you’re going to have a better idea of how much money you actually have to put toward different things that you need or want.
3. Save Automatically
Setting up direct deposit for your savings is always going to be a good option.
It’s going to help you save money without even really realizing that you’re doing it. You won’t know that the money is even in your paycheck because you’ll never actually see it.
This is going to trick your mind into thinking that the money in your checking account is the only money that you have, which keeps you saving and never feeling like you’re sacrificing.
4. Pay Yourself First
Make sure that you’re putting a set amount of money into some kind of special account or into some type of retirement and that it’s all happening automatically.
This money should be prepared before you do anything else because it’s going to help you save, without having to worry about doing it yourself.
When you try to do it yourself it’s easy to decide that ‘this month won’t work.’ Doing it automatically means you won’t even notice it.
Overall, you want to make sure that you’re saving at least 15-20% of your monthly income in some way.
Whether you’re putting most of that toward retirement or toward debt or even into a savings account is going to depend on you, but it’s absolutely something that you need to start working on.
Just make sure that you’re taking a close look at the options and at the best ways to start saving and allocating your money toward making a better life and a better future for yourself. You’ll be much happier in the long run.