How Much Should I Save Each Month?

How Much Should I Save Each Month?

Deciding how much to save each month requires getting a handle on your financial situation and goals. Here are some steps to take to determine how much of your income you should set aside each month.

1. Quantify Your Goals

Take some time to think about your short-, mid- and long-term financial goals. For example, your objectives might include building an emergency fund, saving for retirement and saving for a down payment on a new car.

Once you've laid out your financial goals, determine approximately when you want to accomplish each one and how much money you'll need. Then use that information to determine how much you'll need to save each month. If you want to buy a car with a $5,000 down payment in two years, for instance, you'd need to set aside roughly $209 per month to achieve that objective.

Tip: Boost your savings by putting any windfalls, such as cash gifts, tax refunds or employer bonuses, straight into your savings account.

For long-term savings goals such as retirement, you can work with a financial advisor, use an online retirement calculator or go with the rule of saving 15% of your income for retirement to nail down your monthly savings goal. You can also set retirement savings goals using these guidelines from Fidelity:

• By age 30: Have the equivalent of your current annual salary saved.
• By age 40: Have three times your annual salary saved.
• By age 45: Have four times your annual salary saved.
• By age 50: Have six times your annual salary saved.
• By age 55: Have seven times your annual salary saved.
• By age 60: Have eight times your annual salary saved.
• By age 67: Have 10 times your annual salary saved.

Learn more: Retirement Planning Guide

Wondering how your savings rate compares to that of your peers? The table below shows the median savings balance that different age groups have in transaction accounts such as checking and savings, according to the Federal Reserve.

Source: Federal Reserve's Survey of Consumer Finances, 2022

Learn more: How to Save $10,000 in a Year

2. Use the 50/30/20 Rule

For a simpler approach, consider the 50/30/20 budgeting method. This plan allocates 50% of your monthly take-home pay for essentials, 30% for discretionary expenses and 20% for savings and paying off debt.

You can adjust these proportions based on your situation and priorities. For example, if you want to prioritize saving and are willing to cut back on discretionary spending, you could use a 50/20/30 rule, allocating 30% of your net income to savings.

3. Start Small

If you're living paycheck to paycheck, the strategies above may feel overwhelming. Just remember that saving a little is better than nothing at all. Start by making a budget, which can help you make the most of every dollar. Budget for setting aside just $20 per paycheck, and in one year you'll have $520 in savings—a good foundation for an emergency fund.

Tip: Streamline savings by setting up automatic transfers to your savings account each payday or opening a checking account that rounds up debit card purchases to the nearest dollar and saves the difference.

What Should You Save For?

Financial experts generally recommend that you prioritize building a robust emergency fund and saving for retirement. The former helps you handle big unexpected expenses such as car repairs; the latter provides security for your golden years. Other goals you might want to save for include:

• College tuition for a child or grandchild: A 529 plan, Roth IRA or Coverdell account can offer a tax-advantaged way to save for college costs.
• A down payment on a home or car: Home down payments can range from 3% to 20% of the home's purchase price. For cars, a down payment of at least 20% for a new car and 10% for a used car is typically advised.
• A vacation: Saving up for your vacation can help you avoid racking up debt on your trip. If you want the benefits of travel rewards credit cards, use them for travel and then pay off your balance in full with your vacation savings when you get home.
• Home renovations: As you plan your home improvement project, you can also set aside money to pay for it.
• Holiday expenses: Putting aside a little each month to cover the cost of gifts and entertainment can help you enjoy the holidays without going into debt.
• A wedding or honeymoon: The average wedding costs $33,000, according to 2024 data from wedding planning website The Knot.
• Health care costs: You can generally request cost estimates for medical procedures in advance from your insurer or provider. Your employer may offer specialized savings plans you can use to save for health care expenses.
• Major purchases: Whether your refrigerator is on its last legs or your living room furniture needs a refresh, saving up for large purchases like appliances and furniture can ease the financial sting of spending.

Learn more: How to Use Sinking Funds to Save Toward Your Goals

Where to Put Your Savings

Financial institutions offer a wide variety of savings and investment vehicles you can use to make the most of your savings. Depending on your savings goals, here are some potential places to put your savings:

• High-yield savings account: The best high-yield savings accounts offer above-average interest rates and the ability to access your funds whenever you need them. Most also insure your account for up to $250,000 per person, per ownership category, making this a safe place for your emergency fund or saving for short-term goals.
• Money market account: Money market accounts are like hybrid checking and sometimes offer better returns than high-yield savings accounts. However, since they often require maintaining a minimum balance to earn the best interest rate or avoid a monthly fee, they may be best for those with larger savings balances.
• Certificate of deposit: In exchange for high interest rates, certificates of deposit (CDs) lock up your funds for a period of time, which can range from one month to several years. Annual percentage yields (APYs) are fixed for the term of the account, but you usually can't add more money after your initial deposit. Because you may also be penalized for withdrawing money early, CDs aren't a good place for your emergency fund; they work best for money you won't need until the CD's term ends.
• Retirement accounts: An employer-sponsored retirement plan such as a 401(k) or 403(b) can help you save for the future, and you can maximize savings if your employer offers matching contributions. If your job doesn't offer a retirement plan or you've already maxed out the employer match, consider opening a traditional or Roth individual retirement account (IRA).
• Health savings account: If you have a high-deductible health plan, you may be able to set up a health savings account (HSA). This specialized account allows you to save for eligible medical expenses, including copays and deductibles, and enjoy tax advantages. Your employer may also offer a flexible spending account or health reimbursement arrangement that can help you save for health care costs.
• 529 plan: If you want to help your child or grandchild pay for college expenses, a 529 plan can be a great place to start. These accounts offer tax benefits if funds are used for eligible educational expenses. Other college savings options include Coverdell education savings accounts and custodial accounts.
• Brokerage account: Once you're on track to meet your savings goals, consider opening a brokerage account and investing some of your funds to build wealth over time.

Tip: When comparing your savings account options for saving more money, use an online savings calculator to get an idea of how your savings will grow over time.

How to Save More Money Each Month

Depending on your situation, there may be several ways you can save more money every month. Here are some to consider:

• Reduce discretionary spending. Review your expenses over the past few months and look for areas to cut back. For instance, maybe you can cook meals at home more often, buy generic instead of name brand items at the grocery store or cancel some streaming subscriptions.
• Negotiate your bills. Monthly bills like cable, internet, cellphone and insurance aren't set in stone. Call your provider to ask about discounts or special packages that can reduce your monthly cost, or shop around to see if switching to a new provider could land you a better deal.
• Pay down debt. If you're spending a lot of money on debt obligations, look for ways to reduce those payments, such as consolidating credit card debt, getting on an income-driven repayment plan for your student loans or refinancing your auto loan. If you're struggling to manage your debt, consulting with a credit counselor can help you determine the best course of action.
• Increase your income. Look for ways to make more money, such as working overtime hours, minimizing your deductions, asking for a raise or seeking a better-paying position. If you have the time and mental bandwidth, consider getting a second job or starting a side hustle.

Learn more: Simple Ways to Save Money

The Bottom Line

You may not realize it, but having a good credit score can help you save more money. That's because good credit may help you qualify for lower interest rates on loans—including debt consolidation and refinance loans. Good credit could even help reduce your auto insurance and homeowners insurance premiums. As you consider ways to increase your savings, check your credit report and FICO^® Score^Θ to see whether taking steps to improve your credit could help maximize your monthly savings.