How Much Money Should You Save Each Month?

Quick Answer

There's no hard-and-fast rule for how much you should be saving each month. However, there are some strategies you can use to evaluate your budget and determine the right amount for you.

A group of young adults smiling and holding a piggy bank.

Saving money is a crucial step in accomplishing your financial goals and protecting yourself from unexpected expenses. But the amount you should save each month depends on a variety of factors, including your income, expenses and objectives.

Here are some strategies you can use to determine how much you should save each month, where to put your money and how to increase your savings over time.

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How Much to Save Each Month

Deciding on how much to save involves getting a better understanding of your financial situation and goals. Here are some approaches you can take to determine how much of your income you should set aside each month.

Quantify Your Goals

Take some time to think about your short-, mid- and long-term financial goals. In addition to building a robust emergency fund, this may include things like:

Once you've laid out your financial goals, determine when you want to accomplish each one and how much money you'll need. With that information, you can determine how much you'll need to save each month to get there.

For example, if you want to buy a car with a $5,000 down payment in two years, you'd need to set aside roughly $209 per month to achieve your objective.

For retirement and education savings, you can work with a financial advisor or use an online retirement calculator or college savings calculator to nail down your monthly savings goal.

Use the 50/30/20 Rule

If you want a simpler approach, you may consider the 50/30/20 budgeting method. With this approach, you'd allocate 50% of your take-home pay for needs, 30% for discretionary expenses and 20% for financial goals, including both savings and paying off debt.

While a 50/30/20 split is the standard rule of thumb, you can adjust the proportions based on your situation and priorities. For example, you could increase how much you save if your necessary expenses are low or you're willing to cut back on discretionary spending.

Start out Small

If you've been living paycheck to paycheck and don't have a handle on your budget yet, you may feel overwhelmed by more concrete strategies. While you take time to evaluate both your financial priorities and abilities, it's important to remember that saving a little is better than nothing at all.

If you have some money in your checking account that you can afford to set aside, moving that money to a high-yield savings account can be a great first step on your savings journey and help you develop some momentum.

You can also consider opening a checking account that offers innovative savings features, such as rounding up debit card purchases to the nearest dollar and saving the difference.

Where to Put Your Savings

Financial institutions offer a wide variety of savings and investment vehicles you can use to make the most of your savings. Depending on your savings goals, here are some potential choices:

  • High-yield savings account: The best high-yield savings accounts offer above-average interest rates and the ability to access your funds when you need them. You're also not at risk of losing your principal balance, making this option best for emergency funds, as well as for short-term financial goals you have for the next few years.
  • Money market account: Money market accounts can sometimes offer better returns than high-yield savings accounts, but they also often require you to maintain a minimum balance to earn the best interest rate or avoid a monthly fee. As a result, this option may be best for people with larger savings balances.
  • Certificate of deposit: Certificates of deposit (CDs) offer high interest rates in exchange for locking up your funds for a period of time, which can range from one month to several years. Annual percentage yields (APYs) are fixed for the term of the account, but you usually can't add more money after your initial deposit, and you may be penalized for withdrawing early. As a result, CDs are best if you have funds you don't need for other short-term financial goals.
  • Retirement accounts: If your employer offers a retirement plan, such as a 401(k) or 403(b), you may be able to maximize your retirement savings with the help of an employer contribution match. If you don't have an employer-sponsored plan or you've already maxed out the employer match, you may also consider opening an individual retirement account to get more control over some of your retirement savings.
  • Health savings account: If you have a high-deductible health plan, you may be able to set up and contribute to a health savings account (HSA). This specialized account offers tax advantages and investment options to benefit you as you save for future eligible medical expenses. Other options offered by employers may include a flexible spending account or health reimbursement arrangement.
  • 529 plan: If you want to help your child pay for college expenses, a 529 plan can be a great place to start. These accounts offer tax benefits as long as you use the funds for eligible educational expenses. Other options include Coverdell education savings accounts and custodial accounts.
  • Brokerage account: Once you have a handle on your savings goals, you may consider opening a brokerage account and investing some of your funds to build wealth over time.

How to Increase Your Monthly Savings

Depending on your situation, there may be several ways you can improve your ability to save over time. Here are some to consider:

  1. Minimize your discretionary spending. Take a look at your expenses over the past few months to get an idea of where your money is going. Then, consider areas where you can cut back a little. This may include things like cooking meals at home more often, skipping name brands when you're grocery shopping, canceling or sharing streaming subscriptions and buying secondhand items.
  2. Negotiate your bills. While monthly bills like cable, internet, cellphone and insurance can be considered necessities, that doesn't mean they're set in stone. Try calling your provider to ask about discounts or special packages that can reduce your monthly cost. Alternatively, you can shop around to see if you can save more as a new customer with another provider.
  3. Tackle your debt. If a good chunk of your monthly income goes toward debt obligations, consider ways you can reduce those payments. That may include things like consolidating credit card debt, getting on an income-driven repayment plan for your student loans or refinancing your auto loan. If your financial situation is dire, consulting with a credit counselor can help you determine the best course of action.
  4. Increase your income. If possible, look for opportunities to increase how much you earn from your job. This may include taking on more hours, minimizing your deductions, asking for a raise or switching to a better-paying position. If you have the time and mental bandwidth, other options may include getting a second job or starting a side hustle.

As you evaluate your options, you can use an online savings calculator to get an idea of how your savings will grow over time.

Maintaining Good Credit Can Boost Your Savings

While it may not seem related, having a good credit score can help you save more money. That's because good credit often helps you qualify for lower interest rates on loans—including consolidation and refinance loans—and can even keep your auto insurance and homeowners insurance premiums low.

As you consider ways to increase your savings, check your credit score and credit report to determine whether you can take steps to improve your credit and maximize your monthly savings.