How much should you save a month?
I know the question revolving around monthly savings lingers in many people’s minds.
Setting money aside for a rainy day is an important part of building financial stability for you and your family, but it’s not easy.
Your paycheck may be squeezed between your spending, debt repayment, and other forms of financial commitments.
Regardless, you should not put off saving because you may not be able to achieve your life goals without it.
Let me delve into how much should you save a month and the reasons why you’ll want to save money.
How Much Should you Save a Month
I’m not going to sugarcoat it: the amount of money I recommend is 20% of your current income if you are asking the question how much should you save a month.
And that is a starting point; a baseline.
I may propose saving 30 to 40% of income for higher-earning individuals who have major financial goals.
But for the time being, let’s just speak about saving 20%, because that’s a lot in itself.
I’m not going to claim that this is simple and that everyone can do it. It’s difficult to save 20% of your income.
It’s difficult, it takes effort, and it necessitates a commitment to long-term objectives and priorities.
However, just because something is tough to obtain does not mean you should avoid it.
Start with 10% if 20% seems too challenging. Then, even if it’s only by 2% at a time, raise the goal on a regular basis.
When it comes to how much should you save a month, I would recommend, instead of using dollar amounts, use percentages.
I recommend a 20% monthly savings rate since it allows you to save in proportion to your income.
Everything in personal money is relative.
So, if you make $60,000 a year, a good goal for you would be to save $12,000 in a year.
If you earn $80,000, that goal automatically adjusts for your increased income; you can save $17,000 every year.
The larger the monetary amount becomes as you earn more.
Why you Should Save Money
First and foremost, before you ask how much should you save a month, you ought to understand why you should save money.
If you wants to invest in long-term savings programs, you must first understand why you should save money.
Here are a few reasons why saving money is advantageous:
1. Creates willingness to Take Calculated Risks
There are a variety of ways to save money for the future; one of the most prevalent is to invest it.
Investing money entails making more money with the same amount of money. This type of wealth development entails some dangers/risks.
However, depending on how much you have saved, it becomes easier to take calculated risks with the objective of growing your wealth.
2. Financial Independence
Saving money can give you more flexibility. When you have money saved up, you do not need to rely on others for financial support.
It’s also important to keep some cash on hand in case of emergencies or unexpected bills. Monthly savings allow you to be more flexible in your life choices; you can easily reach your financial goals.
And you can get this freedom simply putting aside a fixed amount each month.
3. Availability of an Emergency Fund
Because emergencies are unforeseeable, having an emergency fund can come in handy.
An emergency fund is money placed away in a savings account for unforeseen events such as car accidents, sudden illnesses, and so on.
Consider opening a favorable savings account to keep emergency funds accessible and available.
4. Financial Stability/Security
It goes without saying that conserving money ensures financial security, and having money makes life easier.
Any money saved safely or invested in a place with high returns and low risk factors can help you live a stress-free life.
The majority of people put money aside for their retirement plans and to ensure financial security throughout those years.
5. Relaxed Retirement
You should seek to save a certain percentage of your income for retirement.
You should start with a percentage that is within budget and achievable and gradually increase it each year until it reaches the desired level.
Automating monthly payments from your checking account to your savings account is the best strategy to save for retirement.
In addition to how much should you save a month, you have also seen the reasons why you ought to be saving.
Where to Put your Savings
When you are sure how much should you save a month, it is also good to know where to keep your money.
The greatest place to put your savings is determined by your financial objectives.
A rainy-day fund of three to nine months’ worth of expenses should be kept liquid, such as in a high-yield savings account at a bank that is separate from your primary checking account.
I would advise you choose a different bank, preferably one without a branch near you. This ensures that the money will be available on short notice, but it will not be enticing to use it foolishly.
Medium-term savings vehicles, such as a 529 account (for schooling) or a brokerage account with a mix of stocks and bonds, can be used to save for long-term goals like a new home fund or your child’s college fund.
Your IRA, 401(k) or other retirement account will most likely house your long-term retirement assets.
Company-sponsored 401(k) plans are one of the first places to check when saving for retirement because they are tax-advantaged and your employer may match up to a specific percentage of your contributions.
Your options may be restricted by what your firm offers, but you should revisit and rebalance on a monthly basis to be on track for your retirement date.
By now you know how much should you save a month, but there are strategies you can try to make your saving easier.
1. The Cash Envelope System
This technique is based on the fact that your salary is in cash, and each expense category has its own envelope.
You divide the money between the envelopes on payday.
If any money remains in any of these envelopes on payday, you can opt to pay off debt faster, boost your savings, or buy something that will make you happy.
You don’t have to necessarily use cash when applying the envelope system. To achieve this, you can use apps designed specifically for cash envelope budgeting.
The cash envelope system approach works because it teaches you to avoid overspending.
It also gives you the option of having fun money without your finance drill sergeant breathing down your neck and forcing you to live like the Spartans.
2. Spending with Intention
Budgeting has a nasty reputation, and for good reason. Every time you order a latte, it conjures up images of a financial drill sergeant slapping you across the knuckles.
I want you to enjoy as many of those $4 lattes as you want.
However, in order to make this stick, you need to start asking those $4,000 and $20,000 inquiries.
What exactly do I mean when I say this?
If those $3 lattes are putting you in debt, it’s a sign that something else in your budget is out of whack. Begin by inquiring about your high-ticket items.
This entails the big-ticket products that are included in your living costs, such as:
- The amount of money you spend on groceries
- Your living quarters (housing)
- Your automobile
- Your financial obligations (debt)
- Subscriptions you don’t use, or don’t need
If you’re not clear where the problem is, break down your spending into the following categories:
Savings: special savings such as weddings, emergency savings, and property down payments.
Payments: Debt, living expenses, and permanent expenses.
Investments: IRA, (401(k), among others.
Spending without feeling guilty: This is for the things that make you happy.
Allocating a percentage of your salary to guilt-free shopping minimizes FOMO, but if you’ve been living on a limited budget, it’s likely that you’ve had to make a sacrifice.
And that’s fine.
Rather, cancel that service or subscription that you’re not sure about and spend your time on the things you enjoy.
I’m not suggesting that you ignore your student debt because you despise it; rather, if you don’t watch television, why have streaming services if you’d rather go out?
Or do you prefer to work out? Or do you have your own private library?
How to Save Extra Money
Knowing how much to save a month is not sufficient without getting some tips on how you would save extra or more money.
Once you’ve determined your savings objectives, you may need to make some lifestyle modifications to achieve them.
Among the ways you can save extra money there is:
1. Make an effort to save money
People sometimes conflate being economical with being cheap, giving frugality a negative rep.
Cheap refers to finding the best deal, but frugal refers to spending in line with your ideals.
You may improve your savings by learning to be thrifty without sacrificing the quality of your life.
2. Consider your priorities
Evaluate your priorities when you begin to save more.
To accomplish your savings objectives, you should not cut things out of your budget that make your life joyful.
Instead, get inventive with the money you don’t want to spend.
You might not be willing to give up weekly dinners out with pals, for example. You may, however, be able to cancel some services that you don’t use very often.
3. Participate in a savings challenge
A savings challenge is an excellent technique to encourage you to save more money.
As you progress through the challenge, you may discover that you can save more than you thought.
With our 100-day savings challenge, you might want to start small.
Over the course of 100 days, the goal is to save every $5 bill you get. It’s remarkable how much money you may save by following this basic strategy.
4. Increase your earnings
If you are unable to reduce your spending, the best solution is to increase your income.
Fortunately, your earning potential is unrestricted.
Asking for a raise in your current work is a good place to start. For the same amount of effort, you might be able to negotiate a better pay rate.
Consider a side hustle if a raise isn’t in the cards.
You can develop a side hustle to supplement your income and boost your savings with a little imagination and hard effort.
FAQs on How Much Should you Save a Month
In regards to how much should you save a month, there are several questions that I have encountered.
Why is it vital to save money?
Setting aside savings, even if you don’t have a specific goal in mind, provides financial security.
Savings minimizes the risk of a debt spiral being sparked by an unforeseen expense.
Which of the savings options provides the least amount of liquidity?
Retirement funds are one of the least liquid forms of savings.
Although it is technically possible to withdraw cash from a retirement account, doing so will result in costly penalty costs.
Because they are timed deposits, certificates of deposit (CDs) are also illiquid.
You can take money out of a CD early, just like you can with a retirement account, but you’ll almost certainly be charged a penalty.
Conclusion on How Much Should you Save a Month
I would advise you to start saving right now.
It doesn’t matter how modest your savings are right now; what matters is that you’re working toward a savings goal.
Be consistent in your efforts, regardless of how much you save.
You’ll be astonished at how much you may save over time by putting aside even tiny sums of money.
I hope you have learned something in regards to how much should you save a month.