Congratulations, you have made the conscious effort to start saving money to build towards a financially secure future. Now that you are ready to start saving, you may be wondering how much money you should be saving each month based on your income, age, and your monthly expenses. To put it simply, when planning a savings goal, you should aim to save as much money as you can each month.
Not everyone has the same variables when determining how much money they should save, so it is important to tailor your saving goals to your financial situation to keep your goals realistic. Learning how much money you should be saving does not need to be a complicated task, and it does not need to be time-consuming or stressful. Once you learn how to save money and after you get started, saving money will seem like a breeze, and you will be on your way to set aside enough money each month to meet your savings goals.
How to Determine How Much You Should Save
When determining how much money you should be saving each month, it is crucial for you to understand one important rule: you need to save according to how much money you make. Everyone makes a different income, and everyone will have different expenses and financial obligations which will help determine how much money they can save each month. One specific savings formula is not going to work for everyone. However, that being said, there are specific guidelines that you can follow based on your income, to determine how much money you should be saving each month. Including these savings goals when establishing a budget for yourself or your family is important, as it can help you determine how much you have to spend on necessary expenses each month.
Determine Your Savings Amount Based on Your Income
If you are just now beginning to save money, you should start saving a small percentage of your income and work your way up. To start, a first-time saver should save 10 percent of their salary each month. When determining how much money you need to save, you want to make sure that you do not start saving too aggressively at the beginning. By beginning small, and by creating a set amount each month, you will make it easier to get used to setting aside that much money each month and to fall into a strong savings pattern. You can do this by moving money in your bank account each month, but some employers may offer direct deposit for your wages, and you may be able to have your employer set up the account so your income is split between your checking and savings accounts.
Over time, and as your income grows and you become more confident with your savings, you will want to increase the percentage that you are saving each month, to reach 20 or 30 percent of your income. If you get a promotion, a raise, or start earning a higher commission percentage, you should increase the percentage of your income that you save each month. When you make more money, you need to remember to increase the amount of money that you are saving not to be tempered to spend more. The more aggressive you are with saving, the more you will feel secure with future expenses. You can use your savings to set up for an energy funds account, or you can out the amount towards retirement.
Try to Save Money in More than One Account
While it is essential for you to have a savings account that you regularly transfer money into, it is also important for you to save money in a retirement account. If you have a savings account but not a retirement account, you may have to retire later in life so you do not run out of your money. Since there are financial penalties for people who withdraw money from their retirement accounts before the retirement age, you will want to have an additional savings account that you will be able to access and draw funds. The earlier that you start saving, the more time you will have to contribute to more than one savings account to maximize your financial security and to prevent having to pay any unwanted financial fees. There are many types of retirement accounts you can invest in to help you and your family later in life, many of which come through your employer. Many people invest in a 401(k) account, but there are other alternatives, depending on your needs.
How much should I be saving for my age?
Just like the amount you save will depend on your income, it will also depend on your age.
If you are a new college graduate and want to set up a savings account after landing your first job, you can save considerably less money each month than someone who has been in the working world for decades, and you will not have to worry about not saving enough money. Also, you can start saving at a lower percentage the younger you start, since theoretically, you will not be touching the money for a long time. Saving money is a long-term gain the younger that you are when you start saving, the more aggressively you can save over a more extended period. But if you do start saving at an older age, you do not have to become alarmed. You may have to save more aggressively in a shorter amount of time to reach your financial goals, but you will still be working to save for the future.
How can I save money to align with my expenses?
Lastly, how much money you should save will also depend on your expenses and other variables. To help determine how much money you should save each month to align your expenses, you may want to consider implementing the 50/20/30 budget rule as you get more comfortable with your saving. To implement, the 50 percent portion of the rule goes to your expenses, the 20 percent goes to your savings and the remaining 30 percent goes to everything that does not fall into either of the two categories, such as “lifestyle” purchases like vacations, hobbies, and entertainment. While this rule states that you should save 20 percent of your income, you can take a look at both the expenses category and the lifestyle category to see where you can spend less. By reviewing these categories, you can transfer more money into your savings account. While saving is long-term, you will be happy if you start saving earlier in your career. Not only will you have more money in savings when you retire than if you started saving at a later age, but you will also become accustomed to saving and will get used to making it part of your every-day lifestyle.