App version: 0.1.0

How Much Money Should You Be Saving Each Month?

How Much Should You Be Saving a Month?
Jennifer Calonia
Jennifer CaloniaUpdated March 22, 2023
Share this article:
Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
Saving money helps you build financial security. It allows you to handle the unexpected and sets you up for a comfortable future. But just how much should you be saving? Is there a rule of thumb for how much of each paycheck you should put aside?Financial planners often recommend saving at least 20% of each paycheck, but the number that makes sense for you will depend on your age, income, financial goals, and lifestyle. Here are some simple guidelines for how much you should be saving a month.

How Much to Save Each Month as a Percentage of Income

There are many different ways to budget your money but one simple framework is the 50/30/20 rule. It allocates your monthly after-tax income into three categories:
  • 50% for needs These are essentials, such as housing, groceries, gas, and minimum loan payments.
  • 30% for wants These are nonessential expenses, such as vacations, shopping, dining out, and entertainment. 
  • 20% for saving and debt repayment This includes the money you put into your retirement fund, like a 401(k) at work, as well money you put towards other savings goals (like building your emergency fund or going on vacation). This category also includes paying off debt, beginning with high-interest accounts like credit cards.
Recommended: Budgeting Tips for Beginners 

Calculating Your 50/30/20 Ratio

To calculate your 50/30/20 ratio, start with your monthly after-tax income. This figure is your income after taxes have been deducted. If you have additional payroll deductions for things like health insurance and 401(k) contributions, you’ll want to add those back to your actual take-home pay. You’re looking for gross income minus taxes.Here’s a look at how the 50/30/20 ratio looks for someone who has a monthly after-tax income of $5,000.

What Is the Average Amount of Savings Per Month

How much you can — and should — save each month, will depend on your age and income, as well as your living expenses. If you’re just getting started in your career and live in a major city with a high cost of living, for example, it may be tough to put aside 20% of your after-tax income into a savings account each month.However, here’s a look at what the 20% savings target looks like for different age groups based on the average after-tax salaries of workers in 2021.
Age GroupAverage Monthly Salary (After Taxes)20% Monthly Savings Goal
Under 25$3,699$740
25 to 34$6,518$1,304
35 to 44$8,160$1,630
45 to 54$8,625$1,725
55 to 64$7,131$1,426

Is It Possible to Save Too Much in Savings?

Believe it or not, it is possible to put too much in a savings account. While savings accounts pay interest, even high-yield savings accounts may not always keep up with inflation. As a result, money you have sitting in a savings account can lose purchasing power over time. Indeed, having too much money in a savings account comes with an opportunity cost, since you might be able to earn more by investing that money in the market.How much is the right amount, and how much is too much? A good rule of thumb is to keep at least three to six months’ worth of living expenses in a savings account for emergencies. If you’re self-employed, work seasonally, or have a one-income household, you may want to shoot for having nine to 12 months’ worth of living expenses in a savings account. 

Saving Any Amount Is a Good Start

If saving 20% of your monthly income isn’t realistic for you right now, don’t get discouraged. Any amount of savings, even just $20 per paycheck or $40 a month, is helpful. In a year, you’ll have nearly $500, which is a good start for your emergency fund.Once you have some emergency savings, you may want to start automatically contributing a small portion of each paycheck to a 401(k) or IRA. If your employer offers matching funds, consider contributing at least enough to max out your employer’s match (since this is, essentially, free money). As your income builds, you can move on to increase retirement contributions (keeping annual limits in mind) and establish a full emergency fund of at least three to six months’ worth of living expenses. You may also want to work towards other savings goals, like buying a car or a home. 

Ways to Boost Your Savings

If you’re looking to build your savings account balance quickly, here are some simple strategies to try.
  • Automate your savings. Also known as “paying yourself first,” automating savings involves setting up an automatic transfer of a set amount from your checking to your savings on the same day each month (perhaps on the day your paycheck clears). 
  • Take advantage of windfalls. If you get an extra check (such as a bonus at work, tax refund, or cash gift), consider putting it directly into your savings vs. your checking account. This can help you reach near-term goals, like building your emergency fund or making a downpayment on a new car, faster.
  • Audit your spending. It can be a good idea to scan the last few months of bank and credit card statements and make a list of where your money is going each month. You may find some easy places to cut back (like a gym membership you don’t use or streaming service you never watch). You can then redirect that money into savings.
  • Knock down debt. Paying off debt can help you save more money by eliminating interest payments. It can be well worth your while to come up with a plan to pay down debt as quickly as possible. Once the debt is paid off, you can put the money you were previously spending on monthly debt payments into savings instead.

Where to Keep Your Savings

The best place to keep your savings will depend on your goals. To build (and store) your emergency fund, consider opening a separate savings account that pays a competitive annual percentage yield (APY), such as a high-yield savings account at an online bank. This type of bank account can also work well for other short-term savings goals, such as saving for an upcoming trip or buying new furniture.For medium-term goals like saving for a home or your child’s college education, you might consider an investment account, such as a 529 account (for education) or a brokerage account with a mix of stocks and bonds. While investing involves risk, a longer time horizon gives you more time to ride out the ups and downs of the market.For retirement savings, you’ll likely want to use a 401(k), individual retirement account (IRA), or another retirement account. 

The Takeaway

The benefit of saving money is clear. It provides a backstop against life’s uncertainties and can help you achieve your near- and long-term goals. Figuring out how much you should be saving on a monthly basis, however, is less straightforward.Many experts suggest saving 20% of your monthly after-tax income. However, it’s not a hard and fast rule. If you are just starting out, you may need to aim for just 5% to 10% of your monthly income and gradually build from there. Any savings is good. The key is to get started and to make it a habit, one that will serve you well throughout life.If you’re interested in finding the best rate for your savings, Lantern by SoFi can help. With our online banking marketplace, it’s easy to compare high-yield savings accounts based on APY, fees, and balance minimums.Lantern can help you compare online savings accounts and find today’s best rate.

Frequently Asked Questions

Is saving $1,000 a month good?
How much should I be saving per month at age 25?
How much do people save on average?
Photo credit: iStock/staticnak1983

About the Author

Jennifer Calonia

Jennifer Calonia

Jennifer Calonia is a Los Angeles-based finance writer who has covered the gamut, including student loans, credit card rewards, consumer loans, and debt. Her work has been featured in outlets like Bankrate, NerdWallet, Business Insider, Yahoo Finance, and U.S. News.
Share this article: