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How much money should you save each month? As much as possible, of course! Each person’s financial situation is different and won’t fit neatly into a certain category. However, I’ve listed below some general rules of thumb you can follow to help determine how much money you should save each month.

Your Financial Picture

To start, how much you should save each month depends on your current financial picture. Whether you’re old or young, just getting started or in the middle of your working life, everyone’s personal finances are going to be a little different.

Not to mention, people have different financial motivations and goals. To get started, sit down and think about what your values are and what is most important in your life. After all, money is nothing, but a tool to achieve and obtain your true ambitions.

For more information about how to assess your current financial situation, please read: Personal Finance – Know Yourself to Get Ahead Financially

What are You Saving for?

Are you sick of living paycheck to paycheck and want to save for peace of mind? Do you have a small child and want to start saving for their future education? Or are you just looking to save because that’s what you’ve been told to do?

Some common reasons include buying a home, retirement, saving for emergencies, saving to give back/donate money, etc. Either way, there should be some pretty obvious reasons why you want to save money.

The reason you’re saving and the time frame to accomplish your goals will influence how much you should save each month.

Is it Best to Pay Off Debt or Save First?

If you’ve read or subscribe to Dave Ramsey’s 7 baby steps, you’ll know that he prescribes to creating a small emergency fund first ($1,000), then paying off all debt, then saving for a fully funded emergency fund.

I think this is a good rule of thumb and has provided great results for years. However, this is a personal question you have to answer yourself.

Do you have the risk tolerance to pay off debt all the while foregoing saving and investing?

50-30-20 Rule

This budgeting rule is a good starting point for determining how much you should be saving each month. The 50-30-20 rule states that you should be spending 50% of your income for needs, 30% for wants, and 20% for savings. This rule is common one in the personal finance arena.

For more, please read: What is the 50-30-20 Budgeting Rule?

How Much Money Should You Save Each Month for Emergencies?

If you don’t already have money set aside for an emergency fund, you need to start saving for one. As mentioned above, Dave Ramsey recommends only saving $1,000 for your starter emergency fund before paying off all of your debt, but this will depend on your risk tolerance and financial picture.

If you aren’t paid frequently or there is a risk of losing your job in the near future, you may want to temporarily save more each month towards an emergency fund instead of paying down debt.

For more information, please read: Emergency Fund Guide: What, Why, & How Much Money to Save

How Much Money Should You Save Each Month for Retirement?

As a general rule of thumb, a minimum of 15% of your income should be saved each month for retirement. To some this may not sound like much, but to others this will be a daunting task.

If this sounds daunting, you may need to look at paying off debt in the interim. Once you’ve paid off debt you should have a higher percentage of your income available for retirement investing.

Also, don’t let the 15% scare you away from investing at all, even a small amount will add up over time, so start if you can even if it is only 1-5% of your income each month.

For more, please read: How to Start Saving Money for the Future

Saving for Other Goals

In addition to saving for retirement and emergencies each month, you may have other goals you’d like to save for like a down payment for a house, your children’s education, or an older loved one that you may have to take care of in the near future.

Whatever your goal, the earlier you start saving for it, the easier it will be. To figure you how much to save each month, figure out the time frame for needing it and estimate a final amount you need to save.

For instance, let’s say you’re saving for a down payment. You are looking at purchasing a home valued at no more than $300,000 at the end of 18 months. You hope to have a 20% down payment to avoid private mortgage insurance (PMI) and get a more competitive rate. To calculate the amount each month you’ll need to save, you first calculate the end amount (20% x $300,000 = $60,000) and divide it by the time frame ($60,000 / 18 months = $3,333.33 per month). In this scenario, you would need to save $3,333.33 each month.

This is also a good way to check and see if your goal is realistic. If it’s not realistic to save $3,333.33 each month, then you may need to change your expectations. For instance, you could save for 24 – 36 months or decide that you need to buy a less expensive house to meet your 20% down payment goal.

How Much Money You Should Save Each Month – Conclusion

To figure out how much money you should save each month, it ultimately depends on your current personal finances and your goals. I’ve listed some general rules of thumb, but they will ultimately need to be tailored to fit your life.

I mentioned this at the very beginning, but unless you’re wealthy enough to not have to worry about money, the amount of money you should be saving each month is the maximum amount you can save. If you do this, it’s much more likely that you’ll reach your goal on time or even earlier than expected.

How much money do you save each month? What are you saving for?

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