How much should I save each month?

When you spend less money than you earn, you have an opportunity to start saving up for the bigger things you want in life. From short-term aims like a vacation to mid-term aspirations like buying a house to long-term objectives like building a retirement fund, putting aside part of your income each month lets you work toward your goals and a more secure financial future. If you have a bit of money left over after paying your bills, you might be asking yourself “How much should I save each month?” This guide will walk you through the key factors you need to consider when determining the amount you should put aside to reach your savings goals.  

Here’s what we’ll cover:

• Defining saving goals
• Determining how much you can afford to save
• Building savings into your budget
• Where to store your savings

Define your savings goals

Before determining how much you should save each month, you’ll need to understand what exactly you want to achieve. Saving money takes commitment, and it’s much easier to stick to your plans when you have a clear sense of what the reward will be down the road. By deciding on your savings goals, you can figure out how much money you’ll need and the timeline. Based on that, you can calculate how much you should save each month to fund your goals. 

Generally, you can sort your goals into categories based on how far into the future you’ll need the money. It’s important to set realistic savings goals and review your progress regularly to ensure you’re on track.

Short-term savings goals

Short-term goals typically span from a few months to a year. Common examples are things like taking a vacation, planning a wedding, or buying a new gadget. Due to the short timeframe, reaching short-term savings goals often calls for a focused savings strategy; many people decide to trim their discretionary expenses so they can reach their savings goals quickly.

Mid-term savings goals

When you set a mid-term savings goal, you’re looking at things you want to save up for in one to five years. These might be for things like a down payment on a house or purchasing a new car.  Mid-term savings goals call for a longer commitment, so you’ll need to dedicate yourself to saving a certain amount each month without fail in order to stay on track.

Long-term savings goals

While it can be tough to plan for the far-off future, creating long-term savings goals can help you reach the milestones that set you up for financial security. Long-term goals generally extend beyond five years and often involve significant sums of money accumulated over time, such as saving for retirement or your children’s education. The sooner you start saving, the more time your money will have to grow. Even if you can only save a little bit each month now, you can get started and increase your savings over time as circumstances allow. 

Emergency funds

An emergency fund acts as a financial safety net for large, unanticipated expenses, like medical emergencies or car repairs. It also provides a buffer for covering your bills in case you lose your job. By building up an emergency fund, you can save yourself from undermining your other savings goals or going into debt when the unexpected happens. Financial experts typically recommend saving three to six months’ worth of living expenses in an emergency fund. 

Determine how much you can save each month

Once you have some savings goals in mind, you’ll want to determine how much money you can afford to save each month. You’ll want to factor in your income, expenses, and existing debt. 

Income

Net income

When calculating how much of your paycheck you can save, start by looking at your net income. Gross income is your total earnings before taxes and other deductions, while net income is what remains after these deductions. It’s important to base your savings calculations on net income, also known as your take-home pay, as that’s the actual amount you have available for saving and spending.

Additional income sources

You might have money coming in from a variety of sources beyond your regular paycheck. Examples include side hustles, rental income, dividends from investments, child or spousal support, government benefits, and royalties from creative works. Be sure to include all income sources when tallying up how much money you bring in each month. 

Variable income considerations

If your income varies from month to month, it can be a bit trickier to calculate how much you should save each month. For individuals with fluctuating incomes, such as freelancers or gig workers, it may be helpful to add up the total income for the previous year and divide by 12 to calculate your average monthly income. Going forward, you might put more money into savings when you have higher-income months and less when your income dips. 

Expenses

Once you know how much money you make, you’ll need to know how much you’re spending to determine what’s left over that you could save. Take a look at your expenses over the last year and categorize your spending to understand how much money you need to live on versus how much you can save each month.

Necessary versus discretionary expenses

Necessary expenses are those that are essential for your a basic standard of living, like rent/mortgage payments, utilities, groceries, transportation, and debt payments. These are the non-negotiable financial commitments that are crucial for day-to-day life.

Discretionary expenses, on the other hand, are the nice-to-haves that you could go without if you have to. Examples of discretionary expenses include dining out, entertainment, travel, hobbies, and subscriptions. When you’re deciding how much you should save each month, these are the kinds of expenses you might decide to trim in order to put more money toward your savings goals. 

Fixed expenses

Fixed expenses are consistent monthly costs. Whether they’re necessary or discretionary, fixed expenses are easy to calculate because they generally don’t change from month to month. Things like your rent/mortgage payments, utilities, subscriptions, and minimum debt payments are usually the same every month.

Variable expenses

Many expenses fluctuate each month, such as groceries, entertainment, and transportation. To understand how much you need to budget for variable expenses, review your spending over the last year: group expenses into categories, add up how much you spent over the year, and divide by 12 to calculate an average monthly amount for your variable expenses.   

Debt

If you have existing debt, you’ll need to take it into account when determining how much to save each month. High-interest debt like credit cards can pinch your budget, and mounting interest can undermine your long-term financial stability, so you might want to prioritize paying it off. With other types of debt, however, you could benefit from taking a slow-and-steady approach to paying it off so you can still add to your savings each month.  

Types of debt

Understanding the nature of each debt and its repayment terms is essential for effective financial planning because it enables you to prioritize payments, manage interest rates, and create an effective savings strategy. 

Good debt	Bad debt
Some forms of debt can add to your future earning potential and overall net worth. This kind of “good debt” usually has relatively low interest rates and fixed terms. Student loans and mortgages are common examples.	Generally speaking, debts with high interest and/or variable terms tend to be considered “bad debt” because you’re racking up interest fees, and carrying large balances can negatively impact your credit score. Personal loans and credit card debt are often the most common forms of this type of debt.

How to manage debt while saving

If you have credit card balances, personal loans, or other debt with high interest rates, it may be wise to pay off those debts before you start working toward your short- and mid-term savings goals. That’s because the interest you’re paying on that debt might far surpass the interest you could earn on money in a savings account. Both the avalanche method and the snowball method are popular approaches for getting out of debt.  

That said, you don’t necessarily have to put off saving for long-term goals if you have debt, especially if you’re building up a retirement fund. Because long-term goals like retirement can take decades to achieve, many people save at least some money every month while working to pay off their high-interest debt. 

Calculating how much you should save each month

Knowing your income and expenses will tell you how much money you need to live each month and how much you have left over. Those leftover funds can be put toward paying down debt and saving money. To decide just how much of your income to save, consider the following factors:

• Debt: If you have high-interest debt, you might want to devote more of your extra money toward paying it down, and focus your savings strategy on long-term goals like retirement until you get out from under that debt. 
• Age: If you’re getting close to the age at which you’d like to retire, you may want to put more of your income toward saving for that goal so you’ll have the amount you need in time. Calculate how much you’ll need to retire comfortably and use that information to decide how much you should save each month for your golden years. 
• Income stability: People with variable income or jobs in volatile industries often choose to save more each month in order to build up a bigger emergency fund in case their income dries up. 
• Lifestyle: If you have lofty savings goals, you might want to look at your lifestyle to see if you could cut back on some discretionary expenses in order to put more money aside. That could help you reach your savings goals more quickly. 

Build savings into your budget

Creating a budget helps you set a savings strategy and stick to it. Once you have a clear picture of your income, expenses, and debt situation, you can decide how much you should save each month and work it into your budget. Consider these popular budgeting approaches and choose one that best fits your financial situation and lifestyle. Flexibility and regular adjustments can help you stay on track.

The 50/30/20 rule

50/30/20 budgeting can help you determine how much you should save each month easily because it relies on percentages, not exact dollar amounts. Applying the 50/30/20 rule involves categorizing your income into needs (50%), wants (30%), and savings/investments (20%). This method simplifies budgeting and ensures you’re consistently saving a portion of your income. And you can always adjust the percentages to reflect your particular circumstances.

Zero-based budgeting

Zero-based budgeting involves assigning every dollar of your income to specific expenses, savings, or debt repayment, leaving you with zero dollars at the end of the month. This method can be helpful if you like to plan your finances in detail, and may be especially useful if you have multiple savings goals you want to work toward at once. 

The envelope system

Envelope budgeting involves allocating cash for different spending categories into envelopes. Once an envelope is empty, you stop spending in that category for the month. This method can help control impulse spending and ensure you stick to your budget. While the envelope system traditionally relies on cash, you can take it digital by using a budgeting app or online banking that lets you set up spending categories to serve as digital envelopes.

Where to store your savings

Don’t just tuck your money under your mattress. Your savings has the potential to grow faster if you keep money in an interest-bearing account or investment account where you can earn returns. This also allows you to take advantage of compounding which is when you earn interest on both your principal and the interest you’ve already earned. Different kinds of accounts are suited to different types of goals.

Options for short- and mid-term savings

Highly liquid, low-risk accounts are ideal for saving money you want to access in a short timeframe. Consider these options when saving for short- and mid-term goals, as well as your emergency fund.  

• High-yield savings accounts: These accounts offer higher interest rates compared to regular savings accounts, helping your money grow faster. Be aware that they may also come with higher minimum required balances, and may also charge fees. 
• Money market accounts: Like a hybrid between a checking account and a savings account, a money market account usually has higher interest than a savings account but also offers check-writing privileges, making it even easier to access your money. 
• Certificates of deposit (CDs): CDs offer higher interest rates in exchange for keeping your money locked in for a set period of time, usually anywhere from three months to five years. They can be a good option if you know you won’t need the money until the CD matures.

Options for long-term savings goals

• Retirement accounts: Investment accounts designed specifically for retirement, like IRAs and 401(k)s, offer tax advantages and are designed for long-term growth. They do come with some restrictions, such as contribution limits and penalties for withdrawing money before retirement age. 
• Brokerage accounts: A brokerage account allows you to invest in a wide variety of securities, such as stocks, bonds, and exchange-traded funds (ETFs). While they don’t offer tax advantages, they provide you with tremendous flexibility for investing money for your long-term goals. 

Start saving toward your financial goals

If you want to achieve your bigger financial goals, saving a bit of money every month can help you work towards your goals, one step at a time. How much you should save each month depends on your goals, income, and expenses. Even if you can’t save as much as you’d like immediately, it pays to get started now. With consistency and discipline, you’ll see your savings grow over time, and that momentum can motivate you to save even more. 

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FAQs

How much should the average person save a month?

Many experts recommend saving about 20% of your income each month. However, this can vary based on individual financial circumstances and goals.

How much should a 30-year-old have saved?

If you’re saving for retirement, the common advice is to have 1x your annual salary saved by the time you’re 30. To reach your retirement goals, you’ll need to continue saving steadily over time.