As you go through life, it is likely that both your personal and financial goals are going to evolve and change a lot.
However, it doesn’t matter what stage of life you might be in because there is one thing that will stay the same. You will never be too old or too young to save money.
The question now is, how much should you save a month?
How Much Should You Save a Month from Your Paycheck?
There are two main rules of savings that you can follow if you want to set aside a part of your paycheck.
10% Rule of Savings (Save 10% of Your Gross Pay)
The 10% rule of savings states that you must save 10% of your paycheck for retirement. This is a good starting place if you don’t have any idea how much you should save a month.
However, remember that this is not a one-size-fits-all rule. It is more of a general guideline that could either work for you or not.
If you save much later and you make more money, the more important it is for you to save. If you will save 10% of your paycheck starting in your early 20s, this 10% rule of saving will work for you.
Unfortunately, not a lot of people in their 20s bother doing something like this. Most people are already in their mid-40s or 50s by the time that they pay serious attention to saving up for retirement.
If this is your case and you have a career that is doing well, it might not be enough to stick with the 10% rule of savings.
But of course, 10% or whatever amount of savings done regularly is much better than not having any savings at all.
20% Rule of Savings (Save 20% of Your Gross Pay)
With the 20% rule of savings, you will allot 20% of your paycheck toward savings. This includes retirement accounts, savings plans, rainy day funds, and debt payments.
These rainy day funds are things that you must add to but will not put your life in danger or leave you with no home if you didn’t.
This specific category of expenses must be paid only after you have taken care of your essentials and before you consider anything in the personal spending category.
While 50% or lower of your paycheck is the objective for essentials, the 20% rule must be your goal when it comes to saving.
You will be able to pay off your debt faster and take more significant steps toward a future free from frustrations through devoting a large part of your income to this category.
Best Banks to Save Money and Earn Interest
Here are some of the best banks you can consider if you want to save money and earn interest:
- Fitness Bank with 1.75% Annual Percentage Yield
- First Foundation Bank with 1.75% Annual Percentage Yield
- Comenity Direct with 1.70% Annual Percentage Yield
- Neighbors Bank with 1.70% Annual Percentage Yield
- UFB Direct with 1.70% Annual Percentage Yield
- CFG Bank with 1.62% Annual Percentage Yield
- HSBC with 1.60% Annual Percentage Yield
- Popular Direct with 1.60% Annual Percentage Yield
- Vio Bank with 1.60% Annual Percentage Yield
- SFGI Direct with 1.56% Annual Percentage Yield
- Rising Bank with 1.55% Annual Percentage Yield
- Live Oak Bank with 1.55% Annual Percentage Yield
- Prime Alliance Bank with 1.55% Annual Percentage Yield
- First Internet Bank with 1.50% Annual Percentage Yield
How Much Should You Save in Your 20s?
Your 20s is sometimes that phase of your life filled with a lot of firsts, like the first chance to handle your own finances, the first time to have a job, and the first time to live alone.
But while you might be tempted to reward yourself for adulting successfully by going on regular trips abroad or splurging on fancy dinners, it is important that you make use of your 20s as the best time to establish your own solid financial foundation.
Experts suggest that even if you are in your 20s, you need to save 25% of your total gross pay.
It may sound like a lot at face value, but it would be better if you broke it down. This 25% will not only include your direct contributions to a Roth IRA or a 401k but also all company matches you receive and cash savings you have with your emergency fund included.
You might also want to count in this 25% those funds that you put toward student loans and credit card debt.
If you turn over the 25% rule of savings, it states that you must not spend over 75% of your total income on necessities such as utilities, phone bill, and discretionary expenses like dining out and travel.
To be able to save well during your 20s, the amount is not the only thing that will matter though.
It is also of equal importance that you make it your habit to save a part of your income each month even if the figure starts small for you to be able to save more little by little.
The main idea here is to have a good plan and work on that plan to get rid of the stress and anxiety instead of making you feel worse regarding the situation.
Experts say that the biggest thing that people in their 20s can do is control their lifestyle choices. There might be a need for you to make several difficult choices so that you can make saving your priority.
This might feel easy to do for some 20-somethings, but for others, the mere thought might be daunting.
But even if you cannot hit 25% or even 15%, it is best that you start somewhere.
If you feel like it will be impossible to do this year, it all boils down to being fine with being vulnerable as long as you have a plan on how to get all the way there.
Some suggest that you try to use an application that will push money to your savings automatically every month. You can set this to automatically increase your savings every month by 2-5% per year. Automation works since you will never miss your money if you don’t see it in your account.
Adding to your contributions once in a while will let you save more over time as you gradually get used to that dip in the checking account.
The bottom line here is for you to make it your priority to save if you are in your 20s even if it is just 2-3% of your income every month.
Having this kind of financial cushion can cover you in times of emergency and let you take chances on investments with more risks. After all, this is the time of your life when you are free to experiment.
How Much Should You Save for Retirement?
The rule of thumb that is generally accepted when it comes to saving for retirement is that you must have at least 80% of the annual salary you made while working. It is sometimes referred to as “replacement income.”
It means that if you used to earn $50,000 a year when you were working, you must have a minimum of $40,000 a year available that you can spend once you reach your retirement years.
This is just the beginning. You then need to multiply this number by the average life expectancy after retirement to know the least total amount you will need. If you have something above this, you will be in a good spot.
How much should you save a month for retirement? After you determined your goal, it is time for you to determine the amount you need to set aside per month.
There are many retirement calculators that you can find online to use for this purpose. You just need to input your variables such as your current age, the desired age for retirement, your current income, and the amount of income that you want to replace at retirement.
For example, let’s say you are now 30 years old, and you wish to retire when you reach 65 years old with a life expectancy of 25 years post-retirement.
You earn $50,000 a year, and you are comfortable with 80% of your income before retirement. Assuming a 6% return on investments, which is a conservative rate, and an inflation rate of 3% over time, you must save $1,437 a month to reach your goal.
While this can put you on track, you must also consider some other possible income sources and debt obligations if there are any.
How Much Should You Save for a House?
How much should you save a month for a house? A house is probably the biggest purchase you will ever make. However, as far as saving for it is concerned, it is never a good target to save as much as possible.
The amount you need to save is going to depend a lot on the amount of the house that you hope you can afford. Some other factors such as where you plan to live as well as the kind of loan you will get also play important roles in how much cash you will need to save a month.
The down payment is going to take up the bigger amount you will save since it is recommended to put down 20% of the purchase price of the house.
Meanwhile, the home inspection will protect you and the lender, pinpointing problems that you probably didn’t see while you were exploring the open house.
There are times when the price of a home inspection is included in closing costs. but sometimes, you have to pay for it out of your own pocket. Expect to spend a maximum of $500 for a basic inspection.
The closing costs refer to the expenses combined together and paid for completing the purchase of the home. These can vary a lot depending on the location and details of your loan and the sale. You will most likely pay 2-5% of the purchase price of the house in closing costs.
After closing on the house, you will need to move your belongings there. If you will be moving locally, it will cost you several hundred dollars.
There are many factors that come into play here, such as the size of the house and the distance moved. Full-service movers can charge at least $800 to move the contents of a three-bedroom house.
Buying the house is just the start of this long-term investment. You also need to budget for the regular homeowner expenses every month, save for renovations and improvements, and keep an emergency fund if unexpected repairs are needed.
Ways to Save More Money
How much should you save a month? This question will be easier to answer if you look for means that will help you save more money. The following are some good ideas you can try:
Invest in Real Estate
Real estate investments are among the best and easiest ways to save more money.
As a real estate investor, you can make more money through appreciation, rental income, and profits made by business activities that rely on the property.
The top benefits of real estate investment include stable cash flow, passive income, diversification, leverage, and tax advantages.
Start a Side Hustle
Making some extra cash through a side hustle can help reduce financial stress so your days will be happier with fewer worries about how to make ends meet.
What makes side hustles great is that you not only get to save money but you can also use this extra money to give yourself a much-needed treat every now and then.
Drive for Uber or Lyft
If you have a car, you can make extra cash shuttling around people through Lyft or Uber.
Rent Out a Room on Airbnb
If you have a spare room or two, you can post them on Airbnb and earn money by renting them out.
Conclusion on How Much Should You Save a Month
Saving for the future is one of the most important steps to build a healthy financial picture. While saving may seem challenging at first, things will get easier with time and practice.
You can make it a reality to save every month. It might not be easy, but you will thank yourself in the future!
- First Time Investor Buys Duplex Making $700 Monthly Passive Income: Case Study
- How to Buy a Rental Property 101 | Become Successful In Rental Property Investing as a Beginner
- What Is Escrow Explained: A Guide to Understanding Escrow in Real Estate
- What Is a Duplex or a Triplex and How to Make Money Investing In Them?
- Everything You Need to Know About the EIN Number and How To Get One
Premium online courses for any level of investor: beginner-advanced. Completely go at your own pace and can be taken through "Self-Study" or through "Membership".
Inside the membership, attend live 90-minute Group Coaching sessions with Coach Dustin Heiner as he and the MPI Coaches teach you how to build a successful real estate investing business.
Connect with the MPI Coaches and the other like-minded investors inside the MPI Mastermind Community. Ask questions about investing and get feedback how to be successful in your business.