After you’ve paid your bills and chipped away at debt, you might not have a lot of cash left over for savings. But stashing away as much as you can — even if it’s a little bit — can go a long way.
But what you should be saving is not a universal rule. Everyone’s habits, plans, and income are different. Here’s how you can see how much to save every month for different needs.
How much to save for retirement
Your retirement savings is directly related to how much your current monthly expenses are. Use a retirement calculator to see if you’re on the right track or what you need to do to get there.
In general, use your target retirement date, your current age and your annual salary as a guide. The sooner you start saving for retirement, the less you’ll need to save every month. But if you didn’t have the cash to contribute to a retirement fund when you were younger, you may need to start adding more now if you have the funds.
If you can, stash away 10% of your income every month, whether it’s in a work-sponsored retirement plan or a personal IRA account. While individual contribution limits might vary depending on the type of account, try to max out your contributions. If you have a retirement plan through work, find out if your company has matching contributions.
Experts recommend saving 1x your salary by the time you’re 30, 3x by the time you’re 40 and 8x by the time you’re 60. Since not everyone earns the same income or has the same financial obligations, this figure is different for everyone.
How much to save for an emergency
Many Americans don’t have any emergency savings, let alone enough to cover a small inconvenience. But if your car broke down and needed repairs, how would you pay for them?
Without an emergency fund, you may have to take out a loan or use your credit cards, which means you’ll pay interest on the money you spend. An emergency fund means you won’t have to pay extra on top of the original cost. Having a fund means you’re saving your future self possibly hundreds or even thousands of dollars in extra interest and fees.
While an emergency savings fund is flexible based on your needs, your first goal should be to save $1,000. After that, try to save at least three months’ worth of expenses. In case of a dire emergency, like losing your job or a loved one, you have cash to cover immediate costs, like home payments or funeral expenses.
Building an emergency fund might be lower on your financial responsibilities list if you’re working on paying down high-interest debt or contributing to your retirement, but you should make room in your budget to save for an emergency. Even if it’s $10 a month in the beginning, it’s better than not having any extra cash at all when something dire happens.
How much to save for wants
After you’ve saved for retirement and emergencies, saving for “nice to have” things feels like a far-fetched dream. You might have lower-tier priorities, like family vacations or holiday spending.
How much you save for “wants” depends on the wants themselves, but you don’t necessarily need to focus on them all at once. Instead, focus on paying off debt that’s weighing you down. That way, when you do start saving for other things, you aren’t torn between paying off debt and helping your child pay for school, for example.
If your debt is paid off, start a line item in your budget to include monthly contributions to your new savings goal. Set up auto-pay so contributions go in without you manually doing it yourself. Make sure it’s an amount you feel comfortable adding every month, and if you find you have extra one month, contribute more. Remember every little bit counts, but you shouldn’t go broke trying to save every extra penny you can find.
According to the 50/30/20 rule, 20% of your income should go towards savings, while 50% goes towards your necessities and 30% is discretionary. But the 30% and 20% are flexible: if you want to put more money away for the things you want, make your 30% for savings and 20% for discretionary spending. As long as you have the capacity to make the right financial moves, do what’s right for your money, both now and in the long run.
Where to save your money every month
If you have many “wants” you’re trying to save for — like a family vacation and a new car — consider opening many different accounts. This way you can keep track of each “want” by their respective balances. If you have more than one child, open up college savings accounts for each one.
For short-term goals, a high-yield savings account for each should work best. But for long-term goals, like those that are seven or 10 years out (or longer), consider investment accounts. They have a higher rate of return in the long run, which means your money is working as hard as it can for you.