How Much Should I Save Each Month?

There's no doubt saving money is important, but it can be tricky to know how much to save each month, especially if you're not sure where to start. The amount you should save largely monthly depends on your financial goals — maybe that means building an emergency fund, buying a house or car, or going on a special vacation. Unfortunately, there's no one-size-fits-all answer. It depends on your income, expenses, and what you want to achieve financially. Let's go over some simple rules and tips to help you answer the question, "How much should I save each month?"

The 50/20/30 Rule

The basic, tried-and-true rule is to follow the 50/30/20 rule. As the name suggests, it's about dividing your income into three categories:

• 50% for necessities (like housing, food, transportation, and debts).
• 20% for savings (including retirement, emergency fund, and other goals).
• 30% for things you enjoy (like entertainment and dining out).

Budgeting for Retirement.

As a general rule of thumb, you should save enough to live on anywhere from 75 to 85 percent of your annual pre-retirement salary. Of course, that number varies depending on the extent to which you plan to maintain your pre-retirement lifestyle. Create your retirement budget by taking your current annual expenses and adjusting for any foreseeable changes to your lifestyle such as downsizing your home, increased travel expenses, changes to health insurance costs, etc. Subtract your projected expenses in retirement from any guaranteed sources of retirement income (Social Security retirement benefit, pension, annuity payments). This is the amount of annual expenses you must fund with savings. Multiply this amount by the number of years you expect to spend in retirement. That’s a general idea of how much you should plan to save before you retire.

Tips to Help Save:

• Cut out unnecessary expenses, like lessening how often you eat out or canceling subscriptions you don't use.
• Make a budget to see where you can spend less. Re-evaluate your budgeting goals often, increasing your savings where you can. 
• Set up automatic transfers from your paycheck to your savings account. 
• Think about ways to make extra money, like taking on a part-time job (if you're able), or selling stuff you don't need.

Remember, the amount you should save also depends on:

• Your age: While it's never too late to start saving, starting early can help reduce stress and allow for more flexibility. 
• Your expenses: If you have high expenses or substantial debt, that could limit savings. If your expenses exceed 50% of your income, you'll have to re-evaluate your strategy to bring those expenses down (e.g. paying off debt) while not going without a savings.
• Your goals: Decide what you're saving for, like retirement or a home. Bigger goals may warrant more savings. 
• Your comfort with risk: This affects how you invest your savings. Long-term savings will benefit from a high-yield savings account, but you may want a more flexible savings account if you need to access your money often. 

Find the savings strategy that works best for you. Remember, even if it's small at first, every bit helps. Start saving, stick to your goals, and adjust as your situation changes. Follow these simple guidelines, and you'll be making good progress. If you have questions about setting up your savings roadmap or opening a savings account, a Personal Banker from FNBO would be happy to answer them. Give us a call today.