How Much Should You Save Per Month?

Savings are essential to your money goals. There’s no hard and fast rule about how much you should save per month, however—it depends on the goal itself and your individual financial situation. That means, though, that there is a way to work out the best monthly amount for you to put aside. This involves getting real about your money situation but without the need to shame yourself into living like a Spartan if you can’t quite afford your big-ticket items yet. 

 
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How do you know how much you should save per month? 

Saving money is hard. There, we said it. 

It’s not easy to put money away for some future version of yourself, especially as we live in a culture of convenience. When was the last time you waited for the potatoes to grow before enjoying your plate of fries? 

But here’s the thing. Saving allows you to build pockets of financial freedom. For example, you can save for a comfortable retirement or a  big event such as a special birthday or a wedding. And because there are so many different things to save for, saving won’t look the same for everyone. 

So how do you decide on the amount? Financial pundits recommend saving 10% of your income per month, but there’s no real reason for choosing this percentage other than it’s easy to account for.

What makes much more sense is knowing which savings goals you have. Then, you can save appropriate amounts for short-, medium-, and long-term goals. I spoke about why not knowing your money goals can lead to you having the worst financial goal in this Men’s Health article. Have a look—and take note.

 
 
 
 

Long-term goals include retirement and education savings which usually take more than 10 years to save for.  Medium-term savings can include saving for your dream home’s down payment and usually take 2 to 10 years.

Short-term savings might be saving up for new tech, a wedding, and other large-ticket items. Typically, they don’t take longer than a year to save up for.

Long term or retirement savings

If you want to have $2 million at retirement and you’re only starting to save for it at the age of 35, $100 a month isn’t going to cut it. Use a retirement calculator to work out your minimum monthly contribution, and use products such as traditional and Roth IRAs and your 401(k) to your advantage.

It’s also worth knowing how much you need to save to maintain your current lifestyle once you down tools and get the proverbial golden handshake. 

Medium or short term savings

Medium or short-term savings are for items or events that you need some time to save up for, but it’s different from your retirement money. The goal with medium and short-term savings is that you’re actually saving money to spend on something specific.

Emergency savings

Don’t forget about emergency savings. While some may advise a nest egg of at least 3 to 6 months, I personally push my savings to 12 months’ worth of income in cash. That takes the edge off instances such as global pandemics, total market crashes, or even a job loss

So, to get back to the question of how much you should save per month, start with what you can afford and work your way up. It doesn’t make sense to save 20% if you can hardly pay your bills and you’re placing your credit score under pressure.

As you pay off debt and free up expenses, you can increase your savings and investment contributions. If you only spend 40% of your income on payments, it makes sense to put away a little extra. 

In my book, I Will Teach You To Be Rich, I recommend the 50/30/20 rule. While this might be a little different than what you’re used to, it’s designed to set you up right for your Rich Life.

Here’s how it works: fixed costs are around the 50% mark of your gross salary, savings and investments are in the 30% slot, and to make life a little more fun, allocate 20% of your earnings to guilt-free spending. 

You can adjust these figures as you meet certain goals and increase your investments or spending as your payments decrease. But the idea is to build yourself a spending pocket that won’t infringe on your financial goals and obligations.

 

We have to talk about debt 

Now, your savings percentage might also depend on your debt. If you have a credit card with a high balance and a high-interest rate, it might not make sense to spend 20% on savings.

You’ll have to compare the interest you’re paying on your debt and the interest you’re getting on your savings to determine whether more money should go into paying off debt first. Let me explain. 

Credit card interest can start from 12.5% APR and go all the way to 25% and upwards, depending on your card. Now, you’re going to find it almost impossible to find a savings account that pays that minimum of 12.5%. On average, savings accounts pay around 0.01% at the bigger banks and can go up to 1% with an online bank. 

If you have a credit card with a balance of $10,000 at a rate of 12.5%, it will take you 36 months to pay it off with a monthly installment of $335. The total interest paid will be $2,040.

Bump that up by $100 and increase the installment to $435, and you’ll pay the card off in 27 months. The total interest paid is $1,491 which means you save $549. 

Now, if you decide to stick that $100 in a savings account instead every month for the next 27 months at an interest rate of (best case) 1%, you’ll earn a whopping $31.73. 

One way to make this a little easier on your pocket is to move the credit card balance to a 0% interest card, and look for a long pay-off period such as 36 months. 

You also want to make sure there’s no balance transfer fee. Then, pay off your credit balance within those 36 months. This might not affect the 10% minimum that goes to savings. 

If this isn’t possible, you still want to pay off that balance as quickly as possible. You might find going 5% extra on debt repayments and 5% on savings might work. Just find the ratio that allows you to get out of the red fastest while building up a financial safety net. 

Check out my blog post to learn my top 3 rules for choosing a credit card that’s right for you. 

Strategies for saving 

Conscious spending 

Budgeting gets a bad rap and for good reason. It conjures up a financial drill sergeant that whips you across the knuckles every time you order a latte. But at I Will Teach You To Be Rich, we have a different approach. We want you to have those $3 lattes and have as many as you like. 

But here’s the thing.

You need to start asking those $3,000 and $30,000 questions in order to make this stick. What do we mean by that? 

If those $3 lattes are putting you under financial pressure, it means that something big is misaligned in your budget. Start asking questions about your big-ticket items. 

The big-ticket items that form part of your living expenses such as: 

  • Your housing 
  • The amount you spend on food 
  • Your car 
  • Insurance 
  • Subscriptions you don’t need, use, or want 
  • Your debt

If you’re not sure where the issue lies, it’s time to break up your expenses into: 

  1. Payments (Your living expenses, debt, and permanent expenses)
  2. Savings (Emergency savings, special savings such as weddings and property down payments)
  3. Investments (These include retirement contributions such as 401(k), Roth IRA, and traditional IRAs).
  4. Guilt-free spending (Whatever rocks your boat, baby!)
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…but you don’t have to take the same path as everyone else. How would it look if you designed a Rich Life on your own terms? Take our quiz and find out: 

Allocating a portion of your income to guilt-free spending eliminates FOMO from your life. But if you’ve been living on a tight budget, it probably means you’ve had to sacrifice something for it. And that’s okay. 

You should lose that service or subscription that you’re not even sure about, and do the things you love. I’m not saying don’t pay your student loan because you hate it. I’m saying if you’re not big on TV, why have streaming services if you’d rather go out? Or work out? Or have your own personal library? 

This will help you: Download my FREE Conscious Spending Plan, save money AND spend guilt-free. 

The Envelope System 

This system works on the basis that your salary is cash and each category that you need to spend money on has an envelope. On payday, you distribute the cash between the envelopes. 

On the next payday, if there’s any money left in any of these envelopes, you can choose to pay off debt faster, increase your savings, or buy that pair of Jimmy Choos. 

Of course, if you’re not sure where to put that leftover money, watch this video for some additional great ideas:

Now, the envelope system doesn’t require you to use actual cash. You can use an app purpose-built for envelope budgeting to get this done. We’re all about automation here. 

The reason why this system works is that it trains you not to overspend. It also creates an opportunity where you can have fun money without your internal finance drill sergeant breathing down your neck. 

What if I can’t save that much? 

I have some handy guides that will help you wiggle free some money to save. 

Some include finding ways to increase your income, from starting a business or side hustle to asking for a raise. I often say, There is a limit to how much you can save, but there’s no limit to how much you can earn.

Extreme changes could include moving to a cheaper house or trading in your car for a cheaper model. Bear in mind, you’re putting these changes in place so you can live your best life, not for you to wallow in silence as you eat Ramen and try to watch your neighbor’s TV from the balcony. 

Even if you’re not at the 10% mark, save 1%, then move it up to 2%, then 5%, until you’re able to put away enough to afford your rich life. 

Saving a portion of your income isn’t always easy, but it is crucial to secure your future. In episode 84 of my podcast, I spoke with a couple that is struggling to save- and it’s wreaking havoc on their lives.

The point is to get started, build momentum, and keep going. It also helps if you start thinking of savings as an urgent way to get out of a financial hole, and not a burdensome expense. 

You can do it 

When it comes to savings, you already have the tools and know-how to get this done. It’s just a matter of automating that monthly payment to the account. 

Start with as much as you can afford and work your way up. Plan your time-sensitive savings goals to ensure you meet them without having to dip into credit. 

Knowing how much you can save means getting cozy with your finances and determining your personal needs. The goal is to get started. 

FAQS about How Much Should You Save Per Month

How can I make saving a habit?

To make saving a habit, try to automate your savings by setting up automatic transfers from your checking account to a savings account. Also, consider making saving a part of your budget by allocating a specific amount each month to savings.

Is it possible to save too much each month?

While it’s generally recommended to save as much as you can each month, it is possible to save too much to the point where it becomes difficult to cover necessary expenses. Prioritize your financial goals and balance saving with other financial obligations.

What if my income is irregular or inconsistent?

If your income is irregular or inconsistent, it can be more difficult to save a consistent amount each month. In this case, consider creating a budget based on your average monthly income, and adjust your savings contributions as needed.

What if I have a large expense coming up soon?

If you have a large expense coming up soon, such as a wedding or home purchase, you may need to adjust your savings rate temporarily to cover the expense. Consider setting a specific savings goal for the expense and working towards it over time.

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Written by

Host of Netflix's "How to Get Rich", NYT Bestselling Author & host of the hit I Will Teach You To Be Rich Podcast. For over 20 years, Ramit has been sharing proven strategies to help people like you take control of their money and live a Rich Life.

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