Last Updated on May 24, 2025 by admin
Saving money is essential for financial stability, but figuring out how much to set aside each month can be challenging. The right amount depends on your income, expenses, and financial goals. This guide will help you determine an effective savings plan.
1. The 50/30/20 Rule
A popular budgeting method is the 50/30/20 rule:
- 50% for necessities – Rent, utilities, groceries, and other essential expenses.
- 30% for wants – Entertainment, dining out, and hobbies.
- 20% for savings – Emergency funds, retirement, and debt repayment.
If saving 20% is difficult, start with a lower percentage and gradually increase it.
Check out this 50/30/30 Calculator by NerdWallet to see how it works.
2. Setting Personal Savings Goals
Your savings amount should align with your financial objectives, such as:
- Emergency Fund – Aim for 3–6 months’ worth of expenses.
- Retirement – Contribute at least 10–15% of your income to a retirement account.
- Debt Repayment – Prioritize high-interest debt while still saving a small amount.
- Big Purchases – Save for a home, car, vacation, or education expenses.
Check out our Emergency Fund 101: How to Save for Unexpected Expenses
3. How to Calculate Your Monthly Savings Target
Follow these steps to determine your savings amount:
- Track Your Income and Expenses – Identify how much money you earn and spend.
- Identify Areas to Cut Back – Reduce non-essential expenses to free up savings.
- Set a Realistic Savings Percentage – Start with 5–10% if 20% is too high.
- Automate Savings – Set up automatic transfers to a savings account.
4. Where to Keep Your Savings
Different financial goals require different savings accounts:
- Emergency Fund – High-yield savings account for easy access.
- Retirement Savings – 401(k), IRA, or other long-term investment accounts.
- Short-Term Goals – Money market accounts or CDs for planned expenses.
5. Adjusting Your Savings Over Time
Your financial situation will change, so review your savings plan regularly. If you get a raise or pay off debt, increase your savings rate. Small adjustments can lead to significant financial growth over time.
Final Thoughts
Saving money each month is crucial for financial security. Start with a manageable amount and increase it gradually. Whether using the 50/30/20 rule or a custom plan, consistency is key. The more you save now, the more financial freedom you’ll have in the future.