Determine how much you want to save each month
If you’re asking yourself, “How much should I save each month?”, it’s time for a financial analysis. When deciding how much to save, consider your income—your salary plus any other household income—as well as all fixed and variable expenses. Financial goals like building an emergency fund, saving for retirement, or planning for major purchases also play an important role. If you have debt, consider your repayment obligations.
Meeting these financial needs can be challenging, especially with inflation and rising costs leading to financial stress. However, if you want to regularly contribute money to a savings account, the first step is to become more aware of your spending habits.
These 10 tips will help you save more consciously and determine a monthly savings amount that works for you.
1: Set Specific Financial Goals
According to Kullberg, there’s no exact formula for saving enough to feel secure. A good rule of thumb, however, is to think about your financial goals and future needs and then work backward to allocate the money needed to achieve them.
“Having specific goals in mind is a great starting point for creating your savings plan,” she says. “Figured out exactly what goes into your savings plan is the first step to saving the right amount. Whether you’re saving for an emergency fund, retirement savings, or a new house, you first need to determine the specifics—from the desired amount you want to save to how long it will take.”
The key is to create a simple budget that’s focused on achieving financial goals.
2: Use a savings calculator
Kullberg also recommends using a savings calculator. “Savings calculators help you estimate how much you need to set aside each month to reach your savings goals,” she says.
3: Use the 50/30/20 rule
There’s no one right way to create a budget. However, the 50/30/20 rule is a popular option: 50% of your income goes towards needs, 30% towards wants, and 20% towards savings.
“It’s a useful rule of thumb for budgeting that helps you establish saving as a habit,” explains Kullberg. This method helps you create a sustainable budget—one that isn’t so strict that you veer off course when the temptation to spend arises.
4: Calculate Your Ideal Savings Rate
If you’re struggling to meet your savings goals, create a savings plan. “Aim to save at least 15 to 20 percent of your gross income if possible,” advises Kullberg. “And if not, adjust that amount based on your financial needs and goals.”
5: Prioritize Your Debt
Debt can significantly slow your savings progress. If you have debt to repay—especially high-interest debt—reduce or pay it off first before you start saving. Every month you’re in debt means your hard-earned money is being used for interest payments instead of toward your savings goals. “If you’re paying off high-interest debt, it’s generally better to put more effort into paying it off,” says Kullberg. “High interest rates can quickly wipe out your savings success.”
6: Establish your emergency fund
“Once your high-interest debt is paid off, you can focus more on saving—especially your emergency fund, which should provide you with three to six months of living expenses in the event of an unexpected event,” says Kullberg.
Build an emergency fund that can grow. High-interest savings accounts and money market accounts are ideal for keeping your money safe and accessible while benefiting from compound interest. This means your money earns interest on both the original amount and the interest it has already earned.
7: Consider Retirement Savings
When you’re asking yourself, “How much should I save each month?”, don’t forget about retirement savings. While it’s tempting to neglect retirement savings—after all, you may have years to save—doing so can be detrimental to your future financial health. “It’s important to start saving for retirement early because the longer you save, the more compound interest will increase your retirement savings,” explains Kullberg.
A retirement budget can help you determine how much money you should set aside to enjoy your well-earned retirement. Investing your savings in a certificate of deposit (CD) can be a great way to grow your money, as can investing in a 401(k) or IRA account, an IRA CD, or an IRA savings account.
8: Set up savings accounts for your goals
If you don’t already have a savings account, open one now to keep your money safe. Better yet, choose a high-yield savings account to get the highest possible interest. Opening a savings account with an online bank like Discover® is quick and easy, so don’t delay. While one savings account is a great start, feel free to open additional accounts if it helps you stay organized while achieving different financial goals.
9: Let technology help you with your financial planning
When using the strategies above to create a financial plan, consider letting technology do some of the work. Saving money requires discipline, but you can make the task easier by automating your savings to ensure you set aside a certain percentage of each paycheck or deposit.
“Automating transfers to separate savings accounts for your goals—such as home improvements, vacations, and emergencies—will help you be disciplined and consistent,” notes Kullberg.
10: Review and Adjust Regularly
Setting financial goals and a corresponding budget, reducing debt, and prioritizing your financial needs is hard work. Don’t waste that effort by simply creating your plan and then forgetting about it. “It’s important to review and adjust your budget regularly,” says Kullberg. “This ensures your savings goals are realistic and in line with your changes in income or priorities.”
Finding the right amount to save each month isn’t a guessing game. By setting clear goals, following these strategies, and regularly reviewing your financial plan, you’ll find the perfect balance between enjoying today and saving for tomorrow.