From emergency funds to retirement accounts and everything in between, it can feel impossible to save enough money each month. Even if you make more than enough money to make ends meet, you might wonder if you’re ever saving enough. While there’s no cut and dry answer as to how much you must save each month, we’ve created a guide to help you determine what’s right for you.

The General Rule of Thumb About Saving

It’s easiest to talk about the general rule of thumb when it comes to the right amount you should save each month.

Does this mean you HAVE to save this much?

It doesn’t. Use this as a guide to decide how much you can save or what goals you want to set for yourself to save more.

Ideally, you should save 20% of your income each month. This goes along with the 50/30/20 rule. 50% of your income should cover your fixed and/or necessary expenses, 30% should cover your variable expenses and ‘fun money’ and 20% should go to savings.

Now in that 20%, you should include all savings and debt payoff. For example, if you have high-interest credit card debt, you’ll use some of that 20% to pay it down or off. But you should also include money to put away for savings.

If you’re thinking there’s no way you could save 20% of your income, you aren’t alone and it’s okay.

Use it as a goal but know that anywhere you start is better than nothing.

Figuring Out How Much You Can Save

Now that you know the 20% rule, figure out where you stand.

How much can you save each month?

If you don’t know, look at your budget and if you don’t have a budget, now’s the time to make one. Use the 50/30/20 guide to help you create your budget.

If while creating it you find that your expenses greatly exceed 50% of your income, figure out where you can cut back. Can you negotiate any of your bills or shop around for cheaper services, such as internet, cable, insurance, and even some utilities?

If you find that you spend much more than 30% of your income on variable expenses and ‘fun’ find ways to cut back. This isn’t a time to blame yourself for doing it ‘wrong,’ but instead, a time to reassess your spending. Pull your bank and credit card statements from the last 6 – 12 months so you get the best idea of where you spend and where you can cut back.

If you budgeted and find that you live paycheck-to-paycheck or you just don’t have enough money to save, figure out how you can increase your income.

Here are a few ways:

• Ask for a raise
• Start a side hustle
• Take on a part-time job
• Sell unwanted items around your home
• Take surveys or participate in focus groups

Look at Your Goals

Next, you need to figure out what you’re saving for. Everyone needs an emergency fund, and most people should have a rainy-day fund too, so we’ll start there.

An emergency fund is money you have set aside in case you lose your job, fall ill, or get hurt and can’t work. It should have 3 – 6 months of expenses in it. If you spend $5,000 a month in bills, then you need $15,000 – $30,000 saved.

Don’t let that number scare you, but instead use it as a guide. You won’t save it overnight, but at least you know how much money you need to reach.

A rainy-day fund is money you set aside for unexpected expenses. Let’s say your car breaks down or you have an unexpected medical visit. Those bills likely aren’t included in your monthly budget, but your rainy-day fund can help cover them. This fund is usually a work in progress as you continually use it and add back to it.

What other goals do you have? Here are some ideas:

• Retirement
• Saving for college
• Saving for your children’s weddings
• Dream vacations
• Buying a house
• Buying a car
• Investing

Prioritize your goals so that you can create a plan to start reaching them.

Set Up Automatic Payments

As soon as you know how much you can save, set up automatic savings. Don’t leave it to chance.

Here are a few ways:

• Set up direct deposit with your employer – They can send money to multiple accounts, so automatically send however much you can save right to your savings account
• Automatically contribute to your 401K – If you have an employer-sponsored 401K, at least contribute as much as your employer will match. Your employer will automatically withdraw the funds pre-tax, so you don’t have to worry about it.
• Transfer savings every payday – If you don’t have direct deposit, you can set up automatic transfers from your bank account. This ensures you pay yourself first and don’t forget to save.

Start Small and Work Your Way Up

Right now, 20% may feel impossible and that’s okay. Start small.

We’re talking even 1%. Let’s say you bring home $5,000 a month. Make sure you’re saving at least $50. That’s not much of course, but it’s a start. Every dollar you save today will be worth more tomorrow.

Next, work on a plan to increase your savings. How can you increase to 2%, 3%, and higher? Here are a couple of ways:

• Cut back on expenses – Cut out any expenses you can and tally up the funds you saved. Automatically transfer those funds to your savings account rather than risking spending them.
• Bring in more income – If you can increase your income, do it. Start a side hustle and put all the money you make toward your savings goals.
• Don’t let lifestyle creep happen – If you get a raise or start a new job for higher pay, don’t increase your lifestyle to meet your new income. Keep the same lifestyle and instead, save the difference.

Where to Save Your Money Every Month

Where you save your money is just as important as how much you save. Sure, you could just put it in a savings account and know that it’s safe, but it will barely grow.

Some money, like your emergency fund or rainy-day fund that you need to be liquid and accessible, can go into an online high yield savings account.

Any other money you save, though, should be invested. Don’t worry, you don’t have to risk it all in the stock market. Here are some ideas:

• Tie up some money in a long-term CD and earn the higher interest rate
• Invest in ETFs (bundled funds that mimic the stock market returns)
• Invest in real estate funds that usually do well during inflation
• Invest some money in stocks

Think about what tax-advantaged accounts you might be eligible for and take advantage of them. For example:

• 401K – If your employer offers a 401K, take advantage of it especially if they match any of your contributions
• IRA – If your employer doesn’t have a 401K, open an IRA and contribute up to $6,000 per year
• 529 savings plan – If you have kids and want to save for college, open a 529 savings plan and take the tax savings (your money grows tax free, and all withdrawals used for educational costs are tax-free too)
• HSA – If you have a high deductible health insurance plan, open an HSA and take the tax advantages. Your contributions are tax deductible, and your earnings grow tax-free as long as you use the funds for qualified health expenses.

You can also invest in taxable accounts, such as a brokerage account either online or with a reputable broker. Just watch the fees and know the risks involved before investing.

Take It Slow

Don’t think you have to rush your savings – you won’t grow them overnight. Take your time and work your way up to saving 20% of your income.

The earlier you start saving the more time your money has to grow and the less you have to contribute to reach your financial goals. It takes time and patience to save to reach all of your goals, but with consistency, anyone can get there.

Key Takeaway

Saving at least 20% of your income each month should be your goal. Don’t think you’ll get there overnight, though. Save as much as you can now and work your way up to help you reach your financial goals.