By Saving a percentage of your salary each month is the cornerstone of personal finance. But how much should you save every month? It depends on where you want to go.
How much should I save per month?
I urge that everyone save at least 20% of their monthly take-home pay.
Finally, how much you should save is highly personal and depends on circumstances such as debt payments, life events, and, of course, your income.
After more than 20 years of writing about personal finance and speaking with thousands of readers, I’ve learnt that some people save far more than 20% of their income, while others save nothing. However, I feel that 20% is a reasonable and feasible savings goal for the great majority.
Why should you save at least 20% of your income?
Here are some stats that I believe demonstrate why a healthy savings rate is so important:
- Inflation rises, and living costs increase faster than income.
- Many people cannot or do not want to work indefinitely.
- Financial instability is a common concern. Job loss, injury, or other unforeseen costs
- Increased savings decrease your reliance on debt
Without savings, you will continually live pay cheque to pay cheque. In the meantime, housing, petrol, health insurance, and everything else will get more expensive year after year.
If your car breaks down or you lose your job, you’ll have to rely on credit cards or loans to cover basic expenses. With an average credit card interest rate of 25%, you’ll pay $250 in interest per year for every $1,000 in credit card debt.
Without money, you will fall further and further behind.
Why saving 20% might not be enough.
To genuinely become ahead, you’ll need to save 30 to 50% of your salary.
At a 20% savings rate, it will take two years to completely establish a six-month emergency fund. (We recommend an emergency fund equivalent to six months’ worth of living expenses). That isn’t horrible, but you’ll probably have other financial goals along the way.
The Federal Reserve reported that the median home price in the United States was $431,000 in June 2023. That means a conventional mortgage for a median-priced property requires a 20% down payment of $86,200.
Next, the average selling price for a new car exceeds $48,000! (Of course, you can and should purchase used. Nonetheless, buying a car is as pricey as ever.
Finally, there is retirement. Simply, you can’t save enough for retirement. Furthermore, the more you save, the earlier you can hypothetically retire.
Calculate how much you should save each month.
Let’s go more personal to help you answer the question, “How much of my pay cheque should I save?”
Estimate your expenses and income.
Before calculating how much to save with each pay cheque, you must first assess your expenses and income. (In other words, make a budget.)
Begin by compiling a list of all of your fixed expenses, such as rent or mortgage payments, auto payments, insurance fees, loan payments, etc.
Then add up the total of these fixed charges.
Next, compile a list of variable expenses such as groceries, entertainment, petrol for your car, and other miscellaneous items that may change month after month.
Once you have an idea of what your monthly expenses will be, you can start estimating your income.
Consider any wages or salaries earned through a job, as well as any alternative sources of income, such as investments or rental property.
Determine your financial goals.
After you’ve estimated your income and spending, it’s necessary to decide which financial goals are most important to you at this point of life.
Are there any short-term goals, such as saving for a vacation? Or long-term aspirations like purchasing a home?
Make sure the objective is realistic in terms of present resources (revenue) and responsibilities (expenses).
Consider emergency reserves – having money set aside in case anything unexpected happens can bring peace of mind during stressful times.
Now that you know how much money comes in and goes out each month, it’s time to calculate how much should be saved with each pay cheque.
Subtract all projected monthly bills from total estimated monthly income and divide by the number of pay cheques received per month to get the amount available for savings after monthly bills are paid.
From here, choose an acceptable proportion depending on your own preferences; 20% is commonly recommended, but if possible, gradually increase this number until you reach your desired savings rate while still keeping essential spending levels throughout the year.
Saving money from each pay cheque can help you achieve your financial objectives and provide peace of mind. Follow the methods indicated above to determine how much of your pay cheque should be saved each month.
Next, we’ll talk about ways to save money from your pay cheque.
Saving techniques
Here are some of the greatest ways to start saving early and regularly. Personally, I’ve discovered that increasing your savings rate will certainly allow you to begin saving more than you ever dreamed possible.
Automate your savings!
Automating your savings plan with direct deposit or automatic transfers is one of the most effective ways to save money from your pay cheque.
Direct deposits allow you to have a portion of your pay cheque automatically transferred into a savings account, so you don’t have to think about it.
Automatic transfers between accounts can also be set up, allowing you to move funds on a regular basis without having to remember to do it manually.
Capitalise on retirement savings.
Employer match programs through your employer-sponsored retirement plan (where applicable) are another excellent option to save money on your pay cheque.
Many businesses provide matching contributions for retirement accounts such as 401(k)s and 403(b), which means they will match any contribution you make up to a specified percentage of your annual salary.
This is a simple technique to increase the amount of money you save in retirement savings with each pay cheque.
Create a different account for each objective.
Finally, if possible, open various accounts to achieve different aims. Keeping separate accounts for short-term and long-term goals makes it easier to track progress and guarantee that all goals are met on schedule.
For example, setting up an emergency fund account expressly for unforeseen expenses such as auto repairs or medical bills can bring piece of mind knowing that there is always something set aside in case something unexpected happens.
Using these tactics, you can devise a plan to save money from your pay cheque and start establishing financial security. Next, we’ll look at how to get the most out of your savings strategy.
Where to keep your savings
Savings accounts are a valuable tool for saving money from your pay cheque. They give a secure location to put your money and can help you meet your savings objectives faster. There are various sorts of savings accounts, each with advantages and disadvantages.
Types of savings accounts
Here are the most common:
- Traditional bank accounts provide low interest rates but no minimum balance requirements or fees.
- Money market accounts are comparable to ordinary bank accounts, except they often provide greater interest rates in exchange for a higher minimum amount.
- High-yield savings account – similar to ordinary savings accounts, but with a higher APR and (typically) tougher conditions and deposit requirements.
- Certificate of deposit (CD) accounts – demand a minimum balance, but have set terms and typically pay greater interest rates than conventional savings accounts.
Savings account benefits
Having a savings account has numerous benefits over keeping cash on hand or investing without one.
For starters, deposits at FDIC member institutions are insured up to $250,000 per depositor, making it significantly safer.
So, if something happens to the bank where you keep your money, you will not lose any funds as long as they are under that limit.
Furthermore, having a designated area for saving helps to ensure that those dollars are not wasted elsewhere. Once deposited, they are inaccessible unless necessary in an emergency situation, like as job loss or medical bills.
Having an emergency fund makes it easier to keep on track with long-term financial goals like retirement planning or future property purchases.
How To Open A Savings Account
Opening a new savings account is quite simple and can be completed online in minutes, depending on the institution and the information required during the application process (e.g., Social Security number).
Most banks will require some sort of identification, such as a driver’s license, before allowing consumers to use their services, so make sure this information is easily available when applying for an account online or at a branch near you.
Once authorised, just link your existing checking/debit card data so that transactions between the two may be made quickly and securely, making financial management easier and more efficient overall.
Saving money is a crucial aspect of financial planning, and a savings account can help you accomplish just that. Knowing the many types of accounts available, their perks, and how to open one are all critical steps towards making sound financial decisions.
Now, let’s look at how to figure out how much of your pay cheque should be saved each time.
Making the Most of Your Savings Plan
Investing in low-risk options for long-term growth is an excellent approach to maximise your savings. Low-risk investments, such as certificates of deposit (CDs) and money market accounts, are secure ways to save money while generating income over time.
When selecting an investment option, carefully read the terms and conditions to determine how much risk you’re taking on and the expected return.
Taking advantage of tax breaks when possible is another important aspect of getting the most out of your savings plan. Tax-advantaged retirement plans, such as 401(k)s and IRAs, provide significant tax reductions that can help you grow your savings faster than standard investments alone.
Before investing in any sort of retirement plan, consult with a financial counsellor or accountant to understand the many types of deductions available and how they will influence your overall financial picture.
Finally, regular progress tracking is critical for staying on track with your savings goals. Reviewing statements from all bank accounts at least once a month will provide you with insight into where your money is going and whether it is being spent appropriately.
Furthermore, setting up automated transfers across accounts can help guarantee that funds are correctly distributed without the need to manually transfer them every time income or costs change.
It will be simpler to keep focused on achieving long-term goals if you evaluate and alter your plan on a frequent basis.
How much should I save from a $1,000 pay cheque?
It is critical to preserve as much of your pay cheque as possible. A reasonable rule of thumb is to save between 10-15% of your monthly income. This will help you establish a solid financial foundation and enable you to achieve long-term goals like retirement or property ownership. If you can save more than 15%, even better. You should also consider creating an emergency fund in case of unexpected expenses. Making wise financial decisions today will set you up for financial success later in life.
How much should a thirty-year-old have saved?
It is impossible to provide a precise answer as to how much a 30-year-old should have saved because several things influence this, including income, expenses, and lifestyle. Financial gurus generally recommend that you save at least 3-6 months’ worth of living costs by the age of 30. Furthermore, it is recommended that you save 10-15% of your earnings for retirement. Finally, if possible, attempt to pay off any high-interest debt, such as credit cards or school loans, before focusing on other savings goals.
Is saving $1,500 each month a smart idea?
Saving $1,500 each month is a great aim to have. It can help you accumulate savings and put you in a better financial position for the future. Having this much money saved each month can provide you with more options when it comes to spending or investing. It’s also crucial to remember that saving is more than just putting money aside; it’s about developing good habits and learning how to manage your money properly. Saving $1,500 every month is an excellent start. Budgeting can help you manage your money more effectively.
