Chapter 02: How Much of My Paycheck Should I Save?

In Chapter 2 of our series, “How Much of My Paycheck Should I Save”, we’re going to help you answer “how much should I save” based on the factors you should consider and some standard budgeting tips.

You’ve always heard it’s important to save as much as you can, but what does that really mean? Realistically speaking, saving can be hard once your paycheck hits your bank account. Bills, necessities, and extra wants may slowly diminish your hard-earned check. If you struggle with paying into your savings first, you’re not alone. 

According to a recent study, 125 million U.S. adults are living paycheck to paycheck. Additionally, 65 percent don’t know how much they spend on a monthly basis. Yet, for those who always preach the value of saving, how much of your paycheck should you save? 

Setting your savings goals too high could deprive your emergency funds and other savings accounts, yet saving too little could hinder your investments. If you want to retire early, start your own business, or buy a house, your savings account is a key ingredient. To find your own answer to “how much should I save?”, keep reading or skip to one of these sections:

• How Much Should You Save Each Month? 
• How Much Should I Have Saved for Each Goal?
• Where Should You Put Your Savings?
• What If You Can’t Save as Much as You Want To? 
• Start Saving Today

How Much Should You Save Each Month? 

Based on the 50/30/20 rule, 20 percent of your income should go to savings and retirement. The remainder of your paycheck is then divvied up between necessities and wants, with 50 percent going towards necessities, like rent, and 30 percent towards your wants.

How Much of Your Paycheck Should Go Where?
Necessities:GroceriesHousingTransportationInsurance (Health/Car)Minimum Debt Payments	50%
Wants:Take-outHobbiesClothing/AccessoriesMemberships/SubscriptionsWiFiTravelExtra Debt Payments	30%
Savings:Savings PlansEmergency FundRetirementInvestments	20%

Note sure where your money is going currently? Use one of our financial calculators to get a better idea and figure out how to better distribute your funds.

How Much Should I Have Saved for Each Goal?

After putting 20 percent of your income towards savings each month, you may increase your payments to reach bigger financial goals. For instance, if you’re wanting to buy a house in the next year, you may want to reduce how much you’re dedicating toward your wants to save extra to meet that goal. 

1. For Emergencies

If your tire blows out or your roof starts leaking, you may need some extra cash to get you back on your feet. Typically, you should have at least three to six times your monthly income stored in your emergency fund. If that seems like a lot, set a smaller goal at $400–1,000 to get you started. Keep in mind, this can fluctuate depending on your lifestyle and goals. 

2. For Retirement

Years down the line, you’ll be grateful for your generous retirement savings. If you’re wondering “how much should I save for retirement”, that largely depends on your personal circumstances and goals.

As a general rule of thumb, you should allocate as much of your income as you can for retirement. Retirement accounts include a 401k, Roth IRA, or an employer investment match account. Set up automatic payments each paycheck to ensure you’re setting your future up for success. 

3. For Investing

If you have extra financial flexibility, consider upping your investments a bit if you can afford it. Low-risk investments, index funds, and bonds are a few investment options. Before making an investment, evaluate which purchase could benefit you and your bank account most in the long run. Keep your investment time horizon and risk tolerance in mind, too.

4. For a Big Purchase

When you’re saving for a big purchase, start by breaking down your savings goals. Sit down and write out your top savings goals and what steps you need to take to reach them. Are you wanting to save for college or buy a new car? Put those goals in motion by creating specific, measurable, attainable, realistic, and time-sensitive (SMART) action plans to get you there.

You may also have short-term goals in mind like, “how much money should I have saved by 21?”—make sure to factor these into your savings plan as well.

Where Should You Put Your Savings? 

Different savings goals may fit different savings accounts. Long-term savings (5–10+ years) typically benefit you the most in investment and retirement accounts. Short-term savings (0–5 years) may be better suited for general and high-yield savings accounts. Strategically planning out your savings goals can help you maximize your investments and avoid penalties. 

• Checking account: A checking account normally doesn’t have any growth opportunities. These accounts are used for everyday purchases like your rent, WiFi, and groceries.
• General savings account: A general savings account has, on average, a 0.01 to 0.08 percent growth APY. These savings accounts are normally used for emergency funds and short-term savings goals. These accounts are easily accessible in case of an emergency and help grow money that’s not being used. 
• High yield savings account: These accounts are best for short-term savings. On average, high yield savings accounts have a one percent APY, one of the highest savings account APRs. This helps you maximize your contributions while remaining flexible for quick access. 
• Contribute to your 401K or investments: Investing in your 401K sets you up for retirement. 401K contributions have the potential to grow your investments and lower your monthly taxable income.

What If You Can’t Save as Much as You Want To?

You may wish to save your whole paycheck, but everyday living expenses like rent and groceries are common necessities. Whether you’re saving for a house or your emergency fund, save what you’re able to. Below are a few ways to make room for your savings goals: 

• Budget for your lifestyle: Learning to budget can is a useful skill and can help you determine your cost of living. Take the time to sit down and see where your money’s going. Highlight unnecessary expenses that could be cut out of your budget. Instead of getting takeout coffee every day, treat yourself to a weekend coffee to spare your budget. You can also use tools like our rent calculator to see how much you can realistically afford—it may be that you need to relocate if you want to increase your discretionary income and savings.
  • Tip: To get started, you can use a simple budget template or the Mint app.
• Make a change jar: Dig for a jar or old cup in your kitchen. Set it on your counter and tape a paper “Savings” label to the front of it. Every time you have spare change or a five dollar bill, add it to the jar. Take your jar to the bank each month to see what extra savings you rounded up. You could also try the envelope budgeting method to start building a tangible savings at home.
• Practice a frugal mindset: Evaluate your life to see what you could do away with. Do you still have that extra chair taking up space in your living room? Post it online to see what extra money you could earn and what stress you could alleviate. You may find that you can easily adjust to a more minimalist lifestyle.
• Pay savings, then yourself: Set up automatic payments to your savings on payday. After a while, you may treat this budget adjustment like a regular bill that needs to be paid each month. 
• Diversify your income: Creating different revenue streams provides a safety net for any money sources that dry up. If you have extra time to spare each month, consider starting a passive income project. Creating a YouTube channel or blog are just a few ways to invest time into your passion and diversify your income. 
• Pay savings, then yourself: Set up automatic payments to your savings on payday. After a while, you may treat this budget adjustment like a regular bill that needs to be paid each month. 
• Diversify your income: Creating different revenue streams provides a safety net for any money sources that dry up. If you have extra time to spare each month, consider starting a passive income project. Creating a YouTube channel or blog are just a few ways to invest time into your passion and diversify your income. 

Even though saving can sometimes be hard to start, it’s one of the key factors of living a financially free lifestyle. Whether you’re wanting to leave your high-stress day job or retire early, your savings is what gets you there. The amount you should save each month should be no less than 20 percent of your income. Yet, if you have bigger goals, you may want to save more. Download our app to set your savings goals and ensure you stay in-tune with your progress. 

Start Saving Today

Now that you have some more context and tips to help you answer “how much should I save?”, you can start forming a plan for putting away a portion of your paycheck. Keep in mind that your plan may evolve and your income and priorities change and that’s okay—just remember to adjust your budget accordingly so you can stay on track. The Mint app is one tool you can use to do this, it’s easy to set up and helps you keep track of your savings and budget all in one place.

Next up in Chapter 3 of our savings series we’ll cover choosing a savings account, so you can find the best place to put your money.

Sources: FDIC | PYMNTS Reports