How Much of Your Paycheck Should You Save Each Month?

Saving money

By Lauren Bringle, AFC®

People keep telling you to save money. You know you should do it. You even want to do it. But where do you start?

Here are some common questions that keep people from saving:

  • How much of your paycheck should you save each month?
  • Should you save a fixed amount or a percentage of your take-home pay?
  • Do you need to radically overhaul your life and cut out everything you love to add to your monthly savings?

These are important questions, but the answer, in a nutshell, is no, you don’t have to sacrifice everything to meet a savings goal. But there are small changes you can make to save money every payday that add up over time. See our related 30-day money-saving challenge.

Here are some practical strategies to start saving money now, as well as plan your savings roadmap and get organized so you can successfully save over the long run.

In this article

It’s okay to start small

Many people feel they can’t save unless they save a lot at once, which can be difficult if you’re living paycheck to paycheck. But if you keep the “go big or go home” attitude when it comes to savings, you may never start saving at all.

The antidote? Start small and start now. Focus on short-term goals so you can hit your long-term goals further down the road.

What does starting small look like?

That depends on your situation.

You have the opportunity to define what “small” means for yourself. The most successful savings strategies are the ones that fit you and your lifestyle, and that you can maintain over time.

Small savings means the difference between an emergency and an inconvenience

For some, small could mean saving $5 a week, which adds up to about $260 a year.

While $260 might not sound like much, it’s enough to transform an unexpected bill from an emergency to an inconvenience, as Maria More, radio personality and personal finance enthusiast says.

For example, the average cost of an urgent-care visit is between $100 and $150 per patient. The average cost of an emergency room visit is between about $350 and $670.

average urgent care cost

If you had $260 in an emergency savings fund, you could completely cover the cost of most unplanned urgent-care trips, or cover a good portion of a trip to the E.R., and work out a payment plan with the medical provider to cover the rest.

If you didn’t have any money saved, however, you have fewer options.

Maybe you get pressured into putting the bill on a credit card and adding interest charges to an already expensive problem, or hurting your credit in the process. Or maybe you have to sacrifice other needs that month to cover the cost or go into debt.

It’s never convenient to have an unplanned expense, but savings prevents that inconvenient expense from turning into something much worse.

Learn how to start (or add to) your emergency savings fund HERE.

Other ways to start small

Small doesn’t have to mean a specific number. Small could also mean making little changes in your life that add up over the long term.

Here are a few more examples of how to start small in order to save big:

  • Round up the change on your purchases and save the difference. For example, some banks let you opt into this service when you buy stuff on your bank’s debit card. Apps like Acorns also let you round up and invest the change. Check with your existing financial providers to find out your options.
  • Throw loose change in a jar and deposit it into your savings once a year.
  • Save on utility and electricity costs by unplugging appliances, washing clothes in cold water instead of hot, turning off the water when you brush your teeth, etc.
  • Consider going low or zero-waste to save money on products for your home, hygiene, etc.
  • Make meals at home to save money on eating out. Depending on the state you live in, you could spend anywhere from $1,500 to almost $4,000 on average eating out each year, with the average menu price per person per meal hovering around $10. By contrast, the average meal at home costs about $4 for groceries, saving you about $6 per person, per meal.
  • Cut out subscriptions you don’t use.
  • Make room for the things you want to spend money by cutting back on the things and expenses you don’t care about or need.
  • Set up a monthly, weekly, or other regular automatic direct deposit to your savings account so you don’t even have to think about saving, it just happens for you.
  • Spend what’s left after saving instead of saving what’s left after spending. This is known as the “pay yourself first” approach.

That list gives you a few ideas to get started saving, but I encourage you to find a way to have fun with it and make saving a game, rather than a punishment.

If you have fun doing something, you’ll keep building the habit, rather than avoiding it.

Turn savings into a challenge for yourself. Get creative and think about the little things you spend money on and how you could save some of it instead. Challenge your friends to turn savings into a competition.

Let your growing savings account be your reward.

Tactics to protect and grow your savings

Part of saving means safeguarding against your own impulse to spend that money. Here are some things to consider that could help supercharge your savings – and actually keep that money in your savings account.

Make your savings difficult to access so you don’t spend it

As you make these changes, put the extra cash you save into an account that’s separate from your checking account.

That way, you keep your savings out of sight, out of mind, and out of danger from you spending it regularly.

If that means putting your savings in a brick-and-mortar bank with limited ATM access, go for it.

Just keep in mind many brick-and-mortar banks, especially the larger national chains, offer lower yields on savings accounts, which means your money grows less than if it were kept in a higher-yield account.

Otherwise known as the Annual Percentage Yield (APY), this percent shows what you’ll earn in interest by having an account.

Many online banks offer high-yield savings accounts with no minimum initial deposit required, meaning you could start your online savings account with $0.

Since banks usually have processing times to transfer money of up to a few business days (not weekends) and you’re limited to 6 "convenient" transfers or less per month out of a savings account, there are more barriers in place before you can access that money.

These extra barriers mean you have to think about a purchase, plan for it, and wait to transfer the money before you buy, which gives you time to avoid impulse buys with your savings.

Set your savings goal as a percentage, not a number

While starting small might look like $5 per week for a while, try to eventually translate that number to a percentage of your overall income.

For example, if you save $5 per week and you make $20,000 per year, you’re saving just over 1% of your income per year.

Why think in terms of percent instead of a number?

While breaking a percent down into a number makes it more specific for savings, if you only set a specific number for your saving goal, that number won’t change over time.

On the other hand, if you view your savings as a percentage of your salary and your salary increases, your savings will also increase.

After all, 1% of $30,000 is $300, for example, which is more than 1% of $20,000. The percentage hasn’t changed, but your salary has, so your savings grows as a result.

A percentage is also convenient if you get a raise, bonus, or other unexpected financial windfall, since you’ll know exactly what percentage to set aside for savings.

What’s the ideal percent of money to save?

While there’s no hard-and-fast rule around what percentage you should save from each paycheck, the general wisdom is to save at least 10%.

If you start smaller than that, don’t let that percentage stop you, just build it into your future savings plan.

Start with what you can save and grow from there.

Just starting to save? Consider saving in this order

So you’ve started saving, and you’ve made small changes in your life to make more space for that savings. Now the question is, what do you save for? And in what order should you save?

Here are some ideas to help you organize your savings goals.

1 - Save for the sake of saving, not just to spend later

Learning this simple mindset shift was a big “Aha!” moment for me.

I used to think money should only be saved to spend it on something later – whether that was a trip or a car or something else.

In my younger years, I never considered you should save just for the sake of saving. Just to create a financial cushion in case of emergency.

But if you haven’t done this yet, now is the time to start. And it starts with building your emergency savings fund.

2 - Build an emergency fund

If you save for nothing else for the rest of your life, save an emergency fund, also known as a “rainy day” fund.

Almost no one makes it through life without an unexpected emergency, like a car accident, medical issue, unexpectedly high bill, etc.

A rainy day fund can turn an emergency into an inconvenience, at least financially speaking.

How much should you save for emergencies?

Many experts suggest you keep 3-6 months of expenses aside in case of major injury, illness, home or auto repair, or unexpected job loss.

What that specific number looks like is based on your typical spending, living expenses and budget. See our separate article about how to create a budget.

Do you have kids or a family member to care for, for example? If so, your emergency fund will probably look different from someone who is young and single without children.

Finding your "magic" savings number

To find your “magic number,” add up how much money you spend on essentials each month, build in some cushion for unexpected costs, and multiply that by 3 months.

Make that 3-month savings cushion your first goal.

Once you hit that number, consider increasing your savings rate to hit the 6-month mark.

For example, if you spend:

  • $1,500 a month in living expenses
  • $500 per month on groceries and eating out
  • $100 on gas
  • $100 on medical expenses

Then you would need an emergency fund of at least $2,200 to cover a one-month long job loss.

Multiply that by 3 and you get $6,600 for a 3 month emergency fund.

Don’t let this number scare you away or make savings feel inaccessible to you though.

Some research suggests the actual number needed for low-to-moderate income families in the case of an emergency is much lower – about $2,467 to be exact.

Ultimately though, every little bit helps.

3 - Save for retirement

Once you’ve set a healthy financial foundation for your emergency savings, the next step might be to start saving for retirement - though you don’t have to wait to save for retirement.

The general guidance is it’s never too early to start your retirement account.

How much to save for retirement

To maintain the same quality of living in retirement, experts typically suggest saving a minimum of 10% to 15% of your gross income, which is your income before taxes, insurance, and other deductions.

So if you make $2,500 per month, you would want to save at least $250 to $375 per month for retirement if possible.

As with savings though, just start putting away however much you can for your retirement.

If you have extra money, say from getting a bonus or saving on groceries, consider putting that towards retirement.

Don't rely too much on Social Security

Most people get Social Security in retirement, but perhaps not as much as you’d think.

According to the Center on Budget and Policy Priorities, a nonpartisan research and policy institute:

“Social Security benefits are much more modest than many people realize; the average Social Security retirement benefit in June 2019 was about $1,470 a month, or about $17,640 a year. (The average disabled worker and aged widow received slightly less.) For someone who worked their entire adult life at average earnings and retires at age 65 in 2019, Social Security benefits replace about 38% of past earnings.”

So while Social Security may be able to replace a portion of your current income, it most likely won’t replace all of it.

The only way to guarantee an income in retirement is to take charge of saving and investing yourself, as soon as you can.

As I once heard personal finance writer and journalist Donna Freedman say:

“The best time to start was a long time ago. The second-best time to start is now.”

So start now, save what you can, and don’t let comparison to others get you down.

4 - Save so you can live a little

While you’re working towards other savings goals, it’s important to set money aside for yourself too.

If your financial goals are too strict, your motivation won’t last and your savings habit will fail over time.

It’s important to save some “fun money” too.

Just like anything else in personal finance, what fun money looks like is personal to you.

Maybe that looks like getting a manicure now and then. Maybe it looks like saving up for a dream vacation, or a nice dinner out, or buying your dog (or cat!) a cute sweater.

It’s your money, which means it’s your choice. Don’t go overboard, but don’t forget to treat yourself once in a while too.

To level up, create a budget

If you’re struggling to find more room to save, or want to supercharge your savings, the next step is to create a budget.

The word “budget” makes some people cringe. If this is you, let’s reframe the mindset by calling a budget what it really is – a spending plan.

It’s not about cutting back, it’s about deciding how you want to prioritize and spend your money each month.

While there are several ways to budget, start with a list of your monthly income and typical monthly expenses. If you don’t know how much is coming in and how much is going out, you’ll never be able to find ways to save.

Next, divide the list between things that are wants (cable, subscriptions, eating out, shopping, etc.) and things that are needs, like rent or mortgage, groceries, utilities and basic transportation.

Look at every single dollar you spend to make sure it’s going to something you need, or something you really value.

Find an expense that doesn’t meet either of those requirements? Consider cutting it out and adding those funds to your savings account instead.

Try to give every dollar a job, so you can put it to work for yourself and your future.

Long story short, just start

Whether you start with $5, a percentage of your income, or a “round up the change when you think about it” savings mentality, remember that starting small can add up to big changes – and big savings – over time.

That savings can help insulate you against financial emergencies and expand your options when it comes to your money.

Bottom line though?

Don’t let a grand financial goal intimidate you or throw you off track when it comes to savings. If you don’t start saving somewhere, you’ll never save anything.

So start where you are and go from there. You can do this.

Are you up to the challenge?

Ready to get serious about saving money? Take the 30-day money-saving challenge. Learn how to jumpstart your savings HERE.

About the author

Lauren Bringle is an Accredited Financial Counselor® and Content Marketing Manager with Self Financial – a financial technology company with a mission to help people build credit and savings.

Written on April 30, 2020

Self is a venture-backed startup that helps people build credit and savings.
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Disclaimer: Self is not providing financial advice. The content presented does not reflect the view of the Issuing Banks and is presented for general education and informational purposes only. Please consult with a qualified professional for financial advice.

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