How much should I save each month?
- Everyone has different savings goals and financial obligations, so save what you can monthly.
- Budgeting strategies and setting goals can help dictate monthly savings contributions.
One way to save money fast is to examine your budget and see if you can regularly set aside money toward your savings.
But is there a way to figure out exactly how much you should save each month? We'll explain how to use budgeting strategies and goal setting to determine how much to save each month, plus where to keep your money depending on your goals.
What is a good amount to save each month?
Around 20% of your income (after taxes) is a good amount to save each month, according to the 50-30-20 budget and 70-20-10 budget. These budgeting strategies may be helpful if you're looking for guidelines on spending and saving money.
With the 50-30-20 budget, you'll split income into three categories: 50% will go toward things you need, 30% to things you want, and 20% for savings and debt repayment. Meanwhile, if you use the 70-20-10 budget, 70% of your income is set aside for wants and needs, 20% goes to savings and investments, and 10% is for debt repayments or donations.
Everybody's ability to save differs, though, points out Patrina Dixon, CFEI, RFC, founder, and CEO of It'$ My Money. If you can't save 20% of your net income, Dixon recommends simply saving what you can.
"Start small and increase as you go along according to your budget. 'Small' can be as low as $20," says Dixon.
Once you establish a budget, Dixon says to look for areas where you can decrease your spending. Over time, you can may find that you can save more each month — going from $20 to $30, and so forth.
More ways to grow your savings monthly
In addition to the 50-30-20 budget and 70-20-10 budget, there are other budgeting methods you can use to help grow your savings. You can implement one of the following budgeting strategies if you're looking for more flexible savings options that don't specify a monthly savings percentage.
- Pay-yourself-first method: This strategy is often referred to as reverse budgeting because it prioritizes saving goals. At the beginning of each paycheck, you'll automatically contribute some money to your savings. Then the remainder of your paycheck can be used for your monthly expenses.
- Envelope method: With this method, you create a budget and set aside specific amounts of cash for each category. You'll put the cash in an envelope and use it for your monthly expenses. If you run out of money for a specific category, you'll have to wait until the next month to spend more. But if there's money left over, it can stay in your envelope for future use.
- Zero-sum budget: The zero-sum budget assigns a clear purpose to every dollar you earn. This strategy is similar to the envelope method, but you don't need to keep your money in cash.
While budgeting may come across as restrictive to some, Dixon encourages people to take on a different mindset.
"I encourage people to look at it as not restrictive, but empowering. You're the one who's set the dollar amount. When the money starts to go down, you then have choices you make," says Dixon. "That's what I love about budgeting. You own it, you decide it, and then you have the ability to modify it."
Build a Budget
The best budgeting apps can help you get your finances in order and track your monthly spending. Top offers include Rocket Money and Simplifi by Quicken.
What should I be saving money for?
Experts recommend having three to six months' worth of expenses saved for emergencies. By establishing an emergency fund, you'll have some room to breathe if an unpredictable situation happens, like if your car breaks down or you lose your job.
You should also aim to have at least one year of your salary saved for retirement by age 30 and 10 times your salary saved by age 67, according to Fidelity Investments.
You also might consider saving money for things you're passionate about or that can improve your way of life. It's beneficial to set a clear purpose when creating a savings goal, so you can follow through and achieve your goals.
Where should I be saving money?
A high-yield savings account is a good place to save money for short-term savings goals or an emergency fund because it allows you to earn interest but still have access to your money. The best high-yield savings accounts pay well above average savings accounts at national brick-and-mortar banks, so you'll likely earn more interest on your savings if you're comfortable with an online-only banking experience.
If you don't need immediate access to your money, a certificate of deposit is another option to keep money for savings goals. CDs allow you to earn the same interest rate for a specific timeframe. However, you generally won't be able to make withdrawals from the account without paying a penalty.
If you're saving money for retirement or have a long-term goal, experts recommend investing instead of saving. While investing holds more risk, you could get greater returns than a savings account. You could open a retirement account or brokerage account if you're interested in investing.
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