How much should I save each month?

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One of the basic tenets of personal finance is to set aside money for savings. However, answering the question, “How much should I save each month?” can feel mystifying, especially if you’re not sure where to start.

The amount of money you should save each month will vary based on your goals. Here’s what you need to know to decide how much to save.

What percent of my income should go into savings?

There are a number of rules of thumb that relate to savings, whether it’s retirement or emergency savings, but a general consensus is to set aside between 10 percent and 20 percent of your income each month for savings.

That’s not always possible, however.

“While I know everyone loves rules of thumb and easy tips, there isn’t a percentage that works across the board for everyone,” says Laura Davis, CFP, a fee-only financial planner at Cuthbert Financial Guidance.

Davis recommends saving whatever you can, with an ultimate goal of getting to the point where you can set aside 20 percent of your take home pay, divided between retirement and emergency savings.

Emergency savings vs. retirement

When dividing your money between emergency savings and retirement, start with your most immediate needs, says Chad Parks, CEO and founder of Ubiquity Retirement + Savings, a small-business retirement plan provider.

Parks recommends figuring out how much you can save each month, and then deciding where to go from there. If you don’t have at least six months’ worth of expenses saved, Parks recommends allocating 80 percent of your savings to building your emergency fund and putting the rest toward retirement. Once you reach a certain level of emergency savings, he suggests shifting the percentage to favor retirement.

For example, let’s say you make $3,500 per month and can afford to set aside 10 percent of your income each month for savings — $350. If you’re building an emergency fund, you’d put $280 aside for that purpose, and the remaining $70 would go toward retirement.

Depending on your situation, you might want to tweak those numbers. Let’s say you’re getting an employer match at work, receiving a maximum match when you contribute 6 percent of your income. It might make more sense to first meet your match by putting $210 into retirement and then putting the remainder, $140, into your emergency savings.

Carefully consider your personal situation and needs and decide on a division that works for you.

Ways to boost your savings

The ultimate goal, though, is to increase what you set aside over time. If you can’t afford to set aside 10 percent to 20 percent of your income right now, start where you can and then find ways to boost your savings over time.

“Evaluate your overall budget and your sources of income and expenses for each month,” Parks says. “Saving is only successful if you know what you can afford to put away.”

Once you have an idea of where you stand and what you can afford, you can use the following tips to increase what you’re setting aside each month for savings.

1. Track your spending

The first step to boosting your savings is to understand where the money is going.

“Keep track and use an app to help monitor your spending,” Parks says. “You will be surprised at how much you’re spending that would otherwise be saved.”

While you don’t need to cut everything fun out of your life, Parks does recommend evaluating those expenses and identifying which ones can be cut so that you can divert some of that money toward saving.

2. Automate your savings

Rather than thinking about moving the money each week or month, Cuthbert Financial Guidance’s Davis recommends automating your savings process as much as possible.

Start by having your retirement savings withheld from your paycheck. That way, you’re saving for your future without ever seeing the money in your account. You can also set up automatic transfers from checking to savings to build your emergency fund.

If it’s appropriate for your circumstances and you qualify, Davis also points out that you can use a Roth IRA to boost your retirement savings.

Don’t be afraid to start small, though. Even if you can’t set aside even 10 percent of your income each month, building the habit is important.

“Small actions make saving achievable, and they add up over time,” Davis says.

3. Build in regular increases to savings

Once you establish a habit of saving, you can build in regular increases until you reach your goal, suggests Kevin Mahoney, CFP,  founder and CEO of Illumint, a financial planning company. Additionally, you need to make sure that the money is going where it will do the most good.

“The key to a successful savings strategy lies in constant progress,” Mahoney says. “Each new year should trigger a 1 percent to 2 percent increase in savings.”

He also points out that every time you change jobs, receive a salary increase or get a bonus, you should increase your savings. Mahoney recommends that savers set aside 50 percent of any “new” money in the form of a windfall like a bonus or tax refund for savings, either by putting it away for retirement or by putting it into emergency savings — or doing both.

This can also apply to life changes. “If a child starting school reduces or eliminates child care payments, put some percentage of that newly available funds toward long-term savings,” Mahoney says.

Bottom line

In the end, the answer to “How much should I save each month?” isn’t cut and dry. Rather than getting caught up in a particular percentage or amount that feels too big and daunting, the key is to build the habit.

“Start where you can, wherever that is,” Davis says. “But start.”

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