How Much Should You Save Every Month?

Saving is Important 

Almost every child had a little piggy bank and was reminded to save their coins while growing up.  It may have even been fun adding to the little savings account for a piece of candy or another small treat.  Now, as adults, the years have added a little wisdom to our lives.  But, hopefully, the habit of savings has continued since childhood.  If not, it may be time to take another look at picking up this very important habit.   

The reasons to save are self-evident: no one knows what is waiting around the corner and we all need to be prepared for the unexpected, especially financially.  It may be a big anticipated purchase, vacation, or maybe the family car needs major work.  Whatever the need, it all means using savings.  But how much should one person save?  

How Much Do You Make? 

Income is going to determine how much can be saved.  Traditionally, twenty percent is the amount recommended to put away, and it is very good advice.  It may sound like a lot out of the paycheque but having a little socked away can free up all kinds of new possibilities.   

First, work out the budget according to the amount of net income—income after taxes and other expenses are taken out.  After fixed expenses are added together, there will probably be more there than you realize.  Then, evaluate what can be saved.  If there is a large amount of disposable income, there can be a higher percentage put into savings.  Even if there isn’t as much leftover, something ought to be put away.  Even if twenty percent is unrealistic right now, make it a goal to work towards. 

Emergency Funds 

What size emergency fund is needed for the average emergency?  How much should be put away in the emergency fund? These are common questions that households often ask themselves. A good rule of thumb is around two thousand dollars.  That will cover most car repairs and other unexpected expenses.  But, that amount can go quickly.   

Ideally, 3 to 6 months worth of expenses (not income) saved is a good amount.  Setting a goal will help a person determine how much to save.  If you’re able, focus on saving as much as you can for several months and then roll it back once you hit your savings goal. 

What Are Your Goals? 

Think about the goals for using the savings.  Is it for a vacation, an automobile, retirement?  Having a number in mind gives a solid goal to shoot for and helps to determine how much is needed to put away.  Come up with a plan and a timeline and then assign dollar amounts to that timeline.  Retirement in particular can take a very long time, but don’t arrive unprepared.   

Once the goal is met, don’t stop saving.  Find a great fund to invest in and start putting savings there – that way it’s fun and exciting while building a solid financial future.