How Much of Your Paycheck You Should be Saving Each Month

Whether you just received your stimulus money or you’ve made it a goal to take savings seriously this year, planning for your financial future is something everyone should be working towards.
If you’re new to saving money, you might not know how much of your paycheck to put aside each month. Even if you’ve been saving for years, it’s important to always adjust your savings amount as your salary grows.
While the amount you can save will vary depending on your expenses, financial goals, and salary, I’ll walk you through the top financial advice on how much you should try to save each month.

How much are Americans saving?

Since the pandemic, Americans’ financial priorities have pivoted. As a result, our savings and spending habits have also changed. Before the pandemic in February 2020, the average personal savings rate in the U.S. was around 8.3%. Flash forward to April of 2020 and the average savings rate hit an all-time high, at 33.7%.
This rate slowly de-escalated throughout the rest of 2020, but shot back up this past January to 19.1%. With new stimulus payments hitting in March, likely, this rate will again shoot back up.
Historically, however, personal savings rates in the U.S. do not fluctuate very often. In June 2015, the average U.S. savings rate was 7.4%, in June 2017, it was also 7.4%, and in June 2019, it was 7.1%. During the pandemic, however, the lowest this savings rate has dropped has been 12.5%.
While this rate will likely even out as more people receive vaccines and the world adapts to a new normal, it’s very likely that many Americans will place a higher emphasis on savings going forward.

How much do experts recommend putting away each paycheck?

Now that you understand what recent personal savings trends look like, let’s dig into what the financial experts recommend. Advice typically ranges from recommending placing 10% to 20% of your monthly income into savings.
But when we’re talking about savings, what does that really mean? Expert advice varies slightly on the breakdown, but in general, it’s recommended that 50% to 75% of your savings amount goes towards retirement goals, while the other 25% to 50% goes towards building an emergency fund and short-term goals.
This means that if you make $4,000 in take-home pay each month, you should put 10% to 20% into savings. This would be between $400 to $800 each month. Let’s say you’re saving more aggressively and putting 20% into savings every month. You’ll then split this up into retirement goals (50% to 75%) by diverting between $400 and $600 to your retirement fund and placing the remaining $200 to $400 into an emergency or rainy day fund and other savings goals.
Of course, this amount can also fluctuate depending on the specific goals you’re planning for right now. For instance, if you’re buying a house in the next year or two, you may opt to put 50% of your savings towards this down payment, and afterward, divert 75% of your savings to your retirement savings and 25% to other goals.
You can also use this retirement calculator to better determine how much you need to save for your ideal retirement scenario.

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I’ll break down a few crucial savings buckets below, to give you a better idea of how to prioritize your savings.

Why an emergency fund is vital

If 2020 taught us nothing else, it’s that having an emergency savings fund is crucial for covering unexpected expenses. Suze Orman, a leading financial expert once recommended needing an 8-month emergency fund, which was much higher than traditional financial advice of having a 3- to 6- month emergency fund on hand.
However, after the pandemic hit, Orman has changed her views on how much money individuals and families should have saved in case of emergency. Now, Orman recommends building a 12-month emergency fund to ensure you’re always financially prepared.
important: Before the pandemic, Suze Orman recommended an 8-month emergency fund. Now she recommends 12 months.
While you don’t have to build as large as an emergency savings fund as Orman suggests, it’s become increasingly important for many Americans to have a nest egg to pull from in case of unemployment, job cuts, and pay decreases. I recommend working towards a 6-month emergency savings fund and continuing to build from there.
Make sure you take advantage of high interest rates by storing your emergency fund in a high-yield savings account.

Don’t wait to plan for retirement

While ensuring you can afford your expenses (rent, utilities, food, and childcare) are pressing financial goals, planning for retirement now is also important. Building an emergency fund should be the priority, but if you’re able to also put money towards retirement, you should. If not, once you have a 6-month emergency fund, begin diverting monthly savings towards your retirement account.
I recommend placing 60% to 75% of your monthly savings into retirement funds, particularly if you have an employer-match 401k or IRA. Take advantage of workplace plans that allow your employer to place money into your retirement fund while you can. Not all workplaces offer this option, so if yours does, contributing as much as you can afford will boost your employer’s match.
You can also open a Roth IRA on your own. Even if you have a workplace retirement fund, opening a separate IRA is rarely a bad idea. Contributing regularly is key. If you have to trim down your contribution while working towards other savings plans or during challenging financial situations, feel free to do so. Just be sure to boost your contribution down the road as your finances improve or your expenses/savings goal requirements decrease.

Paying down debt while growing your savings

Debt is another topic that can be tricky to manage when calculating savings goals. Many leading financial experts have conflicting advice when it comes to managing debt vs. growing savings. Overall, I recommend striving for both — maintaining at least your minimum debt payment, if not more, while continuing to save.
There are many ways to manage your debt repayment, but typically, I like to focus on paying down debt with the highest interest rates first. This often includes credit card debt and personal loans.
If you’re very focused on paying down debt, you can also stall adding to your savings until your debt has been minimized. If you go this route, I’d recommend at least having a small emergency fund at the ready, just in case.

Tips to help you save more

Budgeting

One of the best ways to help you stay on track with your savings goals is by creating a budget. It’s important to know how much money is going in and out of your account regularly, and what those income sources and expenses are.
I recommend combing through your previous month’s transactions and identifying what your money is being spent on. Essential categories should include rent/mortgage, insurance, groceries, utility payments, food, and transportation costs. Non-essential spending categories might include streaming services, restaurant bills or takeout, non-essential clothing, entertainment, travel, etc. Once you have these numbers, set a budget that makes sense for your lifestyle and tracks your spending daily or weekly.
If you’d prefer to stick to a more rigid budgeting philosophy, the 50/30/20 method is a great one that’s perfect for beginner budgets. The premise is simple — 50% of your monthly income should go towards essentials, 30% towards non-essentials, and 20% towards savings.
This strategy is also easy to tweak if you live in a city with a high cost of living, in which case your budget might look more like 60/20/20. Or, if your housing is more affordable and you find you often have extra cash, you may be able to save more, in which case, your budget might be closer to 40/30/30.
There are dozens of different budgeting techniques available – Reverse Budgeting, Zero-Based Budgeting, the Envelope Method — I recommend reviewing the top methods and deciding which one sounds like it will suit your lifestyle and tendencies the best.

Automate savings

When you’re new to saving money, it can be hard to part with 10% to 20% of your paycheck. Moving that money into a savings account can make you feel like you’re losing some of your income, even though you’re building towards a savings goal down the line.
If this sounds familiar, I recommend setting up automated savings rules (if your bank offers them) to move money to your savings account each time you get paid. Doing this makes the savings process seamless, and you won’t feel like you’re missing out on any of your paychecks.
You can automate your savings in other ways, too. Some checking accounts allow you to round up purchases and move your spare change to savings automatically, while others allow you to set up small withdrawals throughout the week to help slowly build your savings account. You can also try apps like Digit which analyze your spending habits and move money daily or every few days to your savings account, without you noticing.

Cut your expenses

Sometimes, no matter how well you stick to your budget, you’ll find your savings goals are just out of reach. When this happens, it’s important to analyze your spending habits and decide what services or purchases you can reduce or eliminate.
For instance, if you’re struggling to save money each month, but spend this same amount eating out at restaurants, you might decide to compromise and reduce your nights out to supplement your savings. You should also review your cable, internet, cell phone, and other utility bills to find out if you can save by switching providers. The app TrueBill is a great tool in that it finds all our subscriptions and shows you how much you spend each month and can even close the unwanted ones.
Lastly, take a hard look at your living expenses (rent or mortgage) and decide if the amount you're paying is worthwhile. If you live in a city with a high cost of living and put most of your income towards rent, you might find you don’t have enough money to enjoy the attractions your city has to offer. Consider moving to a more affordable home or getting roommates to decrease your cost of living.

Boost your income

It’s worth mentioning that increasing your annual income is always an option worth considering when you’re trying to meet savings goals. If you haven’t received a raise (or substantial raise) in years, consider talking to your boss and noting why you deserve to make more money. In most cases, employers aren’t going to pay you more if you don’t ask, so ask for the number you deserve to be making.
If a raise isn’t an option, consider taking on side work or working part-time to earn more money to boost your savings. I don’t recommend this as a long-term strategy, but it can be a good way to quickly fund a vacation trip, pay down debt, or build an emergency fund.

Shop around for savings accounts

Lastly, make sure you take advantage of the best savings account rates on the market, to ensure your money is gaining the maximum amount of money back in interest. You don’t even have to switch bank accounts if you’re fond of your current financial institution, but it’s worth noting that some banks even offer you interest on your checking account balance.
I’ve had a main checking and savings account with a national U.S. bank for years, but that’s not where I keep the majority of my money. I switched to an online bank to manage my freelance expenses and found that I was noticing a difference in the interest I was earning at the end of the year. Now, I keep all of my long-term savings in this account.
Savings account APYs will change as the market fluctuates, but typically online savings accounts like Ally Bank, Chime, and Capital One constantly boast some of the highest rates available.

The bottom line

Ultimately, you should be the one deciding how much of your paycheck goes to savings each month. However, if you want to plan for retirement and other long-term goals, saving at least 10% is recommended, though 20% is better. Lastly, be sure to build an emergency fund before your start saving for other priorities, like a down payment for a house or a vacation.

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