How much should I save each month?

Quote How much should I save each month

Savings are an important part of your financial health — but it can be tricky to figure out exactly how much you should be saving. 

Your decision on how much to save each month will depend on your income, expenses, and unique goals — but having a plan makes all the difference. 

A popular rule of thumb is to save 20% of your monthly income, which typically covers building an emergency fund, retirement savings, and working toward other long-term goals.

However, if 20% feels out of reach, you can start with smaller amounts because every bit counts. Here is everything you need to consider when setting your saving goals. 

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Understanding your savings goals

The first step in creating a savings plan is to identify what exactly you’re saving for. Are you building an emergency fund, focusing on retirement contributions, or saving for a big purchase like a home? 

Knowing your goals will give you a clear direction and help you stay motivated. Since everyone’s financial priorities are different, your savings plan should reflect your unique needs and aspirations.

Why saving money is important

Saving money is the foundation of financial success and stability. It gives you a safety net for unexpected expenses like medical bills or car repairs so you can avoid going into debt.

Consistent saving can also lead you toward financial independence, helping you reduce reliance on credit and build wealth over time. With savings, you’ll have more opportunities to invest, letting your money grow through interest and dividends.

Having savings also means you’re ready for opportunities — whether that’s furthering your education, starting a business, or making a major purchase. It’s not just about the numbers; it’s about reducing stress and knowing you’re prepared for the unexpected and planned milestones in life.

Short-term and long-term goals

To save effectively, it’s important to distinguish between short-term and long-term goals.

  • Short-term goals: These cover expenses you expect within one to three years, like a vacation, new car, or home renovations. Saving for these goals requires a more immediate approach, focusing on accessible accounts.

  • Long-term goals: These are goals more than three years away, such as retirement, buying a home, or paying for college. Long-term savings benefit from strategies like investing, which helps your money grow over time.

Creating specific, measurable goals makes saving more actionable. For instance, instead of vaguely aiming to "save money," set a goal like "save $5,000 in 12 months for a car down payment." Breaking larger goals into smaller, manageable steps can make the process less daunting.

Calculating your ideal monthly savings

Once you’ve set your savings goals, it’s time to figure out how much you need to save each month to reach them. This starts with understanding your cash flow — how much you earn, spend, and can realistically set aside for savings.

Analyze your income and expenses

Start by calculating your monthly income after taxes. This is the total amount you have to cover your expenses, savings, and investments. Then, list out all your expenses:

  • Fixed expenses: Rent or mortgage, utilities, insurance.

  • Variable expenses: Groceries, entertainment, dining out.

Compare your income to your expenses to see what’s left for savings. If the numbers don’t add up, look for ways to cut back. Cancel subscriptions you don’t use or reduce how often you eat out. A budget can help you visualize your spending habits, making it easier to identify areas where you can save more.

To go further, divide your expenses into needs and wants. Needs are non-negotiable essentials like housing and food, while wants are the extras that make life fun. Cutting back on wants, like luxury items or streaming services, can free up some money for savings.

Tracking your spending over a few months will also reveal patterns, like seasonal expenses, so you can plan ahead and be prepared. 

The 50/30/20 rule

You can use various methods to help you determine the right amount to save every month. The 50/30/20 split is a popular budgeting method that suggests splitting your after-tax income into three categories:

  • 50% for needs: Housing, utilities, groceries.

  • 30% for wants: Entertainment, travel, non-essential purchases.

  • 20% for savings and debt repayment: Emergency fund, retirement, or paying off existing debts.

Keep in mind that the 50/30/20 rule is flexible. If your needs take up less than 50%, you can put more toward savings. It’s an easy way to prioritize savings while keeping your spending in check. Using a budgeting tracker like Albert can help you stay on track and adjust as needed.

Adjust your savings based on life changes

Your financial situation will evolve, and your savings strategy should, too. A raise, a new job, or major life events like marriage or having kids may change your priorities.

For example, if you get a raise, try to resist the temptation to inflate your lifestyle. Instead, increase the amount you save each month. On the other hand, if your expenses rise or income dips, you might need to scale back temporarily while still prioritizing savings.

Stay proactive by regularly reviewing your budget and savings goals. Life is unpredictable, but being flexible with your plan will help ensure that you’re ready for whatever comes next. If you’re unsure how to adapt, consulting a financial expert or using tools like savings calculators can help you stay on track.

Strategies for successful saving

Saving money is easier with the right plan in place. You can make saving simpler and more effective with a few smart strategies. Automating your budget, trimming unnecessary expenses, and building an emergency fund are some practical steps to help you stay on track with minimal effort.

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Automate your savings

You can take some of the guesswork out of saving by automating the process. Schedule automatic transfers from your checking account to a savings or investment account. This “pay yourself first” approach ensures your savings goals are met before you’re tempted to spend the money elsewhere.

Automation keeps you consistent, helping your savings build over time without extra effort. It’s a simple way to create a financial safety net while developing solid money habits.

Cut unnecessary expenses

Try to free up more money for savings by eliminating expenses that don’t align with your priorities. Start by reviewing your spending to identify areas where you can cut back. Maybe it’s canceling a subscription you never use, dining out less, or shopping around for better deals on essentials like insurance. It all depends on you and your lifestyle. 

Small changes can add up fast. For example, brewing your coffee at home instead of buying it daily could potentially save you hundreds of dollars a year. 

Another tip is to set clear spending limits for your discretionary categories like entertainment or dining out. Using cash for these purchases can help you stick to your budget.

To avoid impulse buys, try the 24-hour rule: wait a day before making non-essential purchases. This cooling-off period can help you decide if you need the item or skip it altogether.

Cutting expenses doesn’t mean you have to give up everything you enjoy — it just means being more intentional with your money. When you align your spending with your goals, you can save more while still enjoying life.

Build an emergency fund

An emergency fund is important for financial stability. It’s your safety net for unexpected expenses like medical bills, car repairs, or a sudden job loss. Aim to save three to six months’ worth of living expenses in an account that’s easy to access.

Start with a realistic goal based on your monthly costs, and contribute to it regularly, even if it’s just a small amount. Over time, these consistent contributions add up, giving you a cushion that prevents financial stress.

Look for savings accounts with higher interest rates. A high-yield savings account can help your emergency fund grow faster. Most importantly, resist the urge to dip into it for non-urgent expenses. Having this fund in place not only provides peace of mind but can also keep you focused on your long-term financial goals.

Common challenges and how to overcome them

Saving money isn’t always easy. Unexpected expenses and staying motivated can make it hard to stay consistent. But by recognizing these challenges and applying practical solutions, you can keep moving toward your financial goals.

Dealing with unexpected expenses

Unplanned expenses — like medical bills, car repairs, or other emergencies — can throw off your savings plan. That’s where an emergency fund comes in. Setting aside three to six months’ worth of living expenses might help you to cover these costs without derailing your progress.

If you’re caught off guard without enough savings, explore options like adjusting your budget, picking up a temporary side job for extra money, or negotiating a payment plan. Be cautious about turning to high-interest debt, which can create more financial stress.

Another preventative measure you can take is to review your insurance. Make sure your health, auto, and home policies provide adequate coverage for your current needs. Planning for predictable costs, like routine maintenance or annual subscriptions, can help avoid budget surprises.

Flexibility is key here. Regularly reassess your budget and savings plan to make sure you can handle unexpected costs without sacrificing your long-term goals. The more prepared you are, the less financial hiccups will slow you down.

Staying motivated to save

Saving over the long haul can feel tedious, especially when immediate wants or needs compete with your bigger goals. To stay motivated, keep your “why” front and center. Are you saving for a big vacation? A house? Financial independence? Regularly remind yourself of the life you’re building.

Track your progress to stay encouraged and celebrate small wins, like reaching a savings milestone. For extra accountability, share your goals with someone you trust. Having an accountability partner— or even a saving partner — can make the process less isolating.

Tools like Albert can make a big difference. Its personalized insights and spend tracking can help keep you engaged, helping you stay on course. By combining the right mindset with practical tools, budgeting becomes less of a chore and more of a rewarding habit.

Making saving a monthly habit

Building a saving habit is key to securing financial stability and achieving your goals. By defining your objectives, setting realistic monthly contributions, and streamlining the process with budgeting tools, saving can become second nature.

Your savings journey is personal and should reflect your circumstances. Regularly reviewing your plan helps ensure it stays aligned with your evolving needs and aspirations. Financial tools like Albert can simplify this process by providing expert advice and automating your budget.

Prioritizing savings and making it a part of your routine lays the groundwork for a secure and rewarding financial future. The effort you put in today can lead to long-term benefits, offering peace of mind and the flexibility to pursue what matters most to you.

⚡️ Create an Albert account today and start planning with our team of finance experts.

Frequently asked questions

How much money do I need to save every month?

There’s no one-size-fits-all answer, but a common rule of thumb is to aim for 20% of your monthly income.

Is saving $500 a month good?

It depends on your income and goals. If $500 represents 20% or more of your income, that’s a solid benchmark. What’s more important than the amount is building a consistent habit.

Is $1000 a month good savings?

Saving $1,000 a month is an excellent goal, especially if it fits within your budget. It can help you quickly grow an emergency fund or work toward long-term goals.

Is saving $200 a month good?

Saving $200 a month is a great start. What matters most is developing a routine and adjusting your contributions as your financial situation evolves.

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