How much should I save each month?

If you’ve started to gain financial independence, you’ve probably also started to wonder “how much should I save per month?” It’s obvious how important it is to save money.

It can prepare you for a comfortable future and assist you in coping with life’s unexpected costs. However, estimating how much to save might be challenging.

How much money should you save each month?

What does it really mean to save? Savings are usually used to finance other long-term financial goals, such as paying for a home or your child’s university tuition, the emergency fund, retirement fund.

Now you’re probably asking yourself “how much should I save each month? How much of my monthly take-home salary should I put aside?” Financial advisors suggest aiming for between 10% and 20%, though there is no definitive answer for how much to save per month, and it’s never too late to start! See the best savings accounts for people over the age of 60.

Keep in mind that not all 20% goes toward saving. If you have credit card debt or other high-interest debt, set aside some of that towards paying it off. The 20% rule is a useful general principle, but not everyone should adhere to it. Some may struggle to make ends meet and find 20% of their income to save, other people may be able to save more than that rate.

The 20% rule is only part of a larger budget approach, the 50/30/20 budget approach, which recommends allocating 50% of your monthly take-home pay to essentials, 30% to wants, and 20% to savings and debt repayment. You should divide your expenses according to the following breakdown:

50% of your take-home salary: The expenses you can’t avoid are necessities

Your budget should include money for necessary expenses like housing, food, transportation, basic services, insurance, loan minimum payments, and childcare or other costs that must be paid in order for you to work.

30% of your take-home salary: Money spent on wants

It’s not always simple to distinguish between necessities and wants, and it can differ from budget to budget. However, in most cases, wants aren’t necessary for living and working. They can contain monthly memberships and are frequently for amusement, travel, entertainment, or eating out.

20% of your take-home salary: Money sent to savings or repaying debts

The amount you set aside as savings is what you use to plan for the future. Use this portion of your budget to pay down debt that already exists and build a reserve. Your existing financial situation will determine exactly how you should use this portion of your money, but it probably includes paying off high-interest debts from things like credit cards, allocation of money to an emergency fund, retirement savings.

How much to save per month calculator: the 50/30/20 split

You can use the 50/30/20 budgeting technique to find out how much money should you save each month. The 50/30/20 split divides your monthly revenue into the three major groups mentioned above.
To compare your anticipated monthly spending and savings totals with the suggested 50/30/20 budget numbers, you can use a budget calculator to help with your financial planning, or even make your own through spreadsheets.

You might be able to raise your savings contributions by finding ways to save, earn, or even stop spending money. If setting aside 20% of your monthly income is out of your reach, you can lose interest in saving completely. Remember, the important thing is to set aside money, don’t get fixated on a specific number.

The 4% Rule

The 4% rule is a retirement rule of thumb that specifies how much you can take out of your savings each year to maintain your standard of living, as long as you don’t outlive your resources. In order to ensure that your withdrawals keep pace with the cost of living, this regulation has been modified for inflation. To follow the 4% rule, simply take out 4% of the entire retirement savings the first year, and then figure out what the amounts would be in subsequent years to determine how much someone can safely withdraw each year.

The 4% rule may provide investors with peace of mind and assist them in making plans for a secure retirement if they are worried about running out of money in retirement. According to the 4% rule for retirement, a person should aim to withdraw no more than 4% of their assets annually, adjusted for inflation, if they want a 95% probability of not running out of money in retirement.

How to calculate according to your income

To calculate your savings according to your income, start by adding up your total earnings, then deduct your outgoing costs. What is left should be your savings. Divide this number by your total earnings to see how your savings rate compares to the 50/30/20 rule of thumb or the average savings amount per age.

Tips on how to save money

It’s not always easy to find ways to save money. Try following some of the following tips on how to save money:

Pay Off Your Debt

Start with the debt if you’re trying to save money through budgeting but are still heavily indebted. Not persuaded? You can readily determine this by adding up how much money you spend each month on debt repayment. When you are no longer required to pay interest on your debt, you can easily put that money into savings. You have a few options for debt consolidation to improve your ability to pay it off, including a personal line of credit.

Set goals for saving

Imagining what you are saving towards is one of the finest methods to save money. Set saving goals and a deadline if you need some inspiration to start saving. Want to put 20% down on a home purchase in three years? Now that you’ve set a goal, you know how much money you’ll need to set aside each month to reach it.

Put your own needs first

Set up an automatic transfer each payday from your checking account to your savings account. Don’t cheat yourself out of a sound long-term savings plan, whether it’s $50 every two weeks or $500.

Go on a “Staycation”

The concept is: instead of spending thousands of dollars on expensive international flights, explore in your own backyard for enjoyable vacations close to home. Look for inexpensive flights in your area if you can’t drive a long distance.

Spend to Save

Since utility expenses rarely decrease over time, weatherize your home now before it’s too late. Call your utility company and request an energy audit, or look for a licensed professional who can assess the energy efficiency of your entire home. It might be as simple as caulking windows and doors or as complex as installing new siding, insulation, or high-efficiency appliances. Over time, you might save thousands on utility expenditures.

Open a savings account that earns interest

For the majority of us, keeping your savings separate from your checking account helps lessen the propensity to occasionally borrow from savings. Consider products that are more efficient savings vehicles like an ISA. ISAs unlike savings accounts allow you to save money in a more tax efficient way using your tax-free ISA allowance.

If you are interested in saving for retirement more tax-efficiently, there are several different types of ISAs you can choose from, and you can open as many as you want! From Cash ISAs, to Lifetime ISAs and Stocks and Shares ISAs, you can open and save as many ISAs as you want, and even consolidate them through a combine ISA transfer if you want. See more on how to transfer your ISAs.
The best ISA for you will depend on your specific financial situation and when you plan to withdraw the money invested in the ISAs, since each scheme has different conditions.

FAQs

How much money should you save each month?
A general rule of thumb is to set aside around 20% of your income in savings.

Is it better to invest money into a savings account or pay off debt?
Most forms of debt, like mortgages or credit cards, have higher interest rates than savings accounts, so it’s a better idea in the long term to pay off high interest debt over sending money to savings.

What are the best ways to save?
One of the best ways to get yourself into a position where you can invest money in savings is to set savings milestones for yourself that you can track over time to make sure you are reaching your goals.