How much should I save each month?

Saving money is the path to safeguarding your financial future. For many, it can feel overwhelming, even impossible, to build up the savings needed to get through an emergency or retire. We’ll help you figure out how much to save each month, so you can balance progress toward your financial goals with your current, day-to-day financial needs.

Here’s what we’re going to cover:

• How much money should I be saving every month?
• How to build savings
• What should I save money for?
• Where should I put my savings
• Oportun: Affordable lending and savings options designed with you in min

How much money should I be saving every month?

There is no one-size-fits-all answer to how much to save every month. The right amount for you depends on your income, expenses, debts, and financial goals. One type of budgeting method focuses on saving 20% of your monthly budget. Called the 50/30/20 method, splits your money into three buckets:

• Needs: 50% of your budget goes toward needs, like housing, utilities, and groceries.
• Wants: 30% of your budget goes toward wants, like dining out, hobbies, and streaming services.
• Savings: 20% of your budget goes toward savings. Savings can include saving money and any payments on debt beyond the minimum payments.

Using this method as a starting point could help you sketch out your budget, identify savings opportunities, and start working toward their goals. After you develop this understating, you could adjust your savings ratio to fit your personal financial situation.

How to build savings

There are plenty of ways to save more money each month, including:

Automate your savings

Many people automate their savings through finance apps, which eliminates the need to set up and track transfers manually. Some people set up their paychecks to be directly deposited into two different accounts: a checking and a savings account. It’s also possible to set up recurring payments from a checking account into a savings account if your bank offers that feature. With automation, there’s less temptation to reduce or avoid saving, as your savings are set up and continue automatically.

Track your spending

If you don’t already, track your spending to help you see where each dollar goes every month. This allows you to see if you have leftover income each month you could put toward savings and may help reduce spending. For example, you might uncover subscriptions you pay for but don’t use. Canceling these can free up money to save monthly.

Eliminate debt

Paying down debt frees up money to put toward savings and reduces your interest costs. There are many methods on how to prioritize which debt to pay off first, two of which are the debt snowball and debt avalanche methods:

• Debt snowball method: You pay down debts from smallest to largest principal balance. This can build momentum faster but saves less on interest.
• Debt avalanche method: You pay down debts from highest to lowest interest rate. This can allow you to save more on interest, but it takes longer to build momentum.

Consult with a financial advisor

Many people work with financial advisors to sketch out their income and expenses, showing where their money goes monthly. From there, they can help you determine your financial priorities and reduce expenses to free up more money.

Financial advisors also offer tips for selecting the best savings vehicles for your goals. For example, if you’re saving for a shorter-term, routine goal like a vacation, your advisor will help you find an account that balances interest earnings with accessibility.

What should I save money for?

Here are some common reasons to save money:

Covering emergency expenses

Emergencies could happen at any time. Preparing for these situations by saving up can help you pay for the cost of the emergency and cover living expenses if needed, such as if the emergency is a job loss. By saving for emergencies, you’ll minimize the need to borrow money, which can help you save money on interest and simplify your finances.

Buying a house

The standard practice for buying a home is saving 20% of the total home value for a down payment, which can be a significant amount of money. For example, a 20% down payment on a $200,000 home is $40,000. That doesn’t include closing costs or ongoing expenses involved in the home, such as property taxes or repairs.

Starting a family

According to Credit Karma, raising a child costs an average of $16,227 to $18,262 per year, equivalent to $1,352.25 to $1,521.83 monthly. This includes daily expenses like food and childcare, as well as long-term goals like education.

Many people manage these costs by saving money long before they have their first child. Ideally, you’ll cover most of these with your income. However, more savings can help cover family-related costs as needed, for example if your income decreases due to reduced work hours to stay home with your new child. Extra savings can bridge gaps.

Going to college

College costs nearly $40,000 per student annually on average, according to the Education Data Initiative. Scholarships, grants, and other debt-free aid may help, but they don’t always cover all costs. Saving for college is critical for going to college. Certain education savings accounts, like 529 Plans, offer tax advantages for educational expenses to stretch your college savings further.

Retiring

You qualify for Social Security benefits at age 62. However, Social Security may not provide enough retirement income to live comfortably in retirement. This is why many people save a large portion of their income for retirement across a range of accounts, such as:

• Traditional savings accounts: These help with ongoing savings goals, such as vacations or home repairs.
• Workplace retirement accounts: These deduct contributions from your paycheck, reducing your tax burden and helping you set aside more for retirement. Some employers even offer matching bonuses.
• Individual Retirement Accounts (IRAs): These let you expand your retirement savings when you max out your workplace account. Traditional IRAs offer tax-deductible contributions, but retirement withdrawals are taxed at ordinary rates. Roth IRA contributions are not tax-deductible, but qualifying retirement withdrawals are tax-free. Both offer tax-deferred growth

Going on vacation

Setting aside money for vacations lets you enjoy your trip without financial worries. Your vacation savings earn interest as you’re building them up, which could stretch your vacation budget.

Saving for vacations also makes it easier to plan the trip itself because you can plan each expense around your total budget. It narrows your choices, which can reduce the stress of planning.

Where should I put my savings?

Several savings vehicles exist, each offering distinct advantages to suit different savers. Some of these include:

• High-yield savings accounts: These accounts pay around 11 to 14 times more interest than traditional savings accounts. This way, your savings grow faster and potentially keep pace with or beat inflation.
• Certificates of Deposit (CDs): A CD pays higher interest than a traditional savings account but doesn’t let you withdraw money for a specified period. The longer the CD term, the higher the interest rate. As a result, they provide safe savings vehicles for long-term goals like buying a home.
• Money market accounts: These combine the higher interest rates of savings accounts with checking account features like check-writing and debit cards. They only allow six withdrawals a month. These may be a good choice for more frequent financial goals where more access could help, such as saving for vacations.
• College savings accounts: If saving for college costs, college savings accounts could help. For example, a 529 plan offers tax-deferred growth and tax-free withdrawals for qualifying educational expenses.
• Retirement accounts: Retirement accounts offer tax advantages, such as tax-deductible contributions or tax-free withdrawals. These accounts let you invest in various securities and enjoy tax-deferred growth if your investments perform well.

Oportun: Affordable lending options designed with you in mind

Now that you understand how much money you should save each month, it’s time to learn about how Oportun may be able to help you if you’re looking for an automated saving product or affordable credit options. Visit our homepage to learn about:

• Savings
• Personal loans
• Secured personal loans
• And more

Sources:

CreditKarma. How much does it cost to raise a child in 2024?

Education Data Initiative. Average Cost of College & Tuition

Bankrate. Employee tuition reimbursement: How to make the most of tuition benefits

Investopedia. Living on Social Security Alone: Can You Do It?

Social Security Administration. Delayed Retirement Credits

CBS News. High-yield savings accounts vs. regular savings accounts: Which is better?