How much should I save each month? -Nasdaq | CarTailz

Most people know the importance of saving, but deciding how much to save each month is less clear-cut. The answer to this question depends on your personal situation. Fortunately, general guidelines can give you a better sense of how much you should be saving.

How much should I save each month?

There’s no one-size-fits-all answer to how much you should be saving each month. It depends on factors like age, income, and goals. However, the “50/30/20” approach can give you a general idea of ​​how much income you should invest in a savings account.

This popular rule of thumb says you spend 50% of your after-tax income on needs (like housing and utilities), 30% on wants, and 20% on savings and paying off debt.

Let’s see how that breaks down for someone with a net monthly income of $4,000.

  • Needs: $2,000 (50% of income)
  • Want: $1,200 (30% of income)
  • Saving and Paying Off Debt: $800 (20% of income)

Like all financial advice, the 50/30/20 method will not work for everyone. Saving 20% ​​of every paycheck may be too high for some and too low for others. If you’re new to your career and live in an expensive area, you might not be able to reach that percentage until you get a few raises. And if you’re behind on retirement savings, you probably want to save more than 20% of your income to catch up.

You can play around with a savings calculator and enter the exact numbers to see how long it will take you to reach your financial goals.

How I increase my savings every month

To increase your savings rate, you must increase your income or decrease your expenses. If you can do both, all the better. Here are some ways to do that.

  • Track your expenses. When you find out where your money is going, you can take control of your finances. Track your expenses manually by combing through your bank statements, or use a budgeting app that automates the process.
  • Automate Savings. Automating your savings means you “pay yourself first” by investing your income in savings before you have a chance to spend it. The best online savings accounts make this easy by offering automatic transfers, rounding up, and the ability to have a percentage of your paycheck deposited directly into savings accounts.
  • pay off debts. Carrying a lot of debt can eat away at your income and reduce your ability to save. Focus on paying off high-interest debt first. Once you’ve done that, you can reallocate the money you paid off your debt to your savings instead.
  • Negotiate a raise. A raise is one of the quickest ways to increase your savings, but only if you save the difference and avoid becoming a lifestyle victim.
  • earn money on the side. If you can’t increase your income through traditional employment, try making money on the side by creating passive income streams.

What should I spend my income on?

If you stick to the 50/30/20 rule, about half of your income should be spent on necessities or fixed expenses. This includes your home (rent or mortgage payments), utility bills, car payments, insurance premiums, childcare, and taxes.

Another 30% of your income can be used for wishes or variable expenses. This includes groceries, dining, entertainment, personal care, clothing, hobbies, home maintenance, and auto repairs.

Finally, the remaining 20% ​​of your income should be saved (or used towards debt obligations, if you have any). This includes putting money into an emergency fund, saving for financial goals like retirement and vacations, and paying off credit card and loan balances.

What should I save for?

Everyone has different goals, but here are some of the most common savings goals.

emergency fund

Emergency funds give you a buffer so an unexpected expense doesn’t ruin your finances. Most experts recommend saving at least three to six months of living expenses in an emergency fund. To determine how much you can save, list your monthly basic maintenance expenses and multiply that amount by the number of months. If your monthly basic expenses are $3,000, a six-month emergency fund is $18,000.

retirement

Saving for the golden years is one of the most important reasons to build a nest egg. Typically, people with retirement accounts like 401(k)s and IRAs save for retirement. If your employer offers a retirement plan and company settlement, try to contribute the maximum amount possible.

life goals

Whether you dream of buying a house, buying a new car, or taking a vacation to Europe, most life goals require some money in the bank. Your emergency fund and retirement savings should probably take priority, but once you’re on track with those savings priorities, you can focus on more fun goals.

Where should I keep my savings?

It’s best to withdraw money that you don’t need for day-to-day expenses from your checking account to earn interest on it and avoid overspending. Here are some of the best places to save money:

  • Saving account. Savings accounts keep your money safe and sometimes pay interest. Look for accounts with no monthly fees.
  • Savings account with high return. A high yield savings account is a savings account that offers a higher than average interest rate or annual percentage return (APY), which allows your money to grow faster. Many high-yield savings accounts are available for free from online banks.
  • money market account. Like high-yielding savings accounts, money market accounts offer a risk-free place to store money while earning interest. These accounts come with features like debit cards and check-writing privileges that make your funds easier to access.
  • Certificate of Deposit (CD). A certificate of deposit offers a fixed interest rate, and the best CD interest rates are higher than what you earn from the accounts above. In exchange for fixed interest, you agree to hold your money in the account for a set term, which can range from one week to five years or more. There are usually penalties for withdrawing your money early, so CDs are best for money you won’t need to access for a while.

bottom line

Knowing how much you can save each month is helpful. And if you’re not sure how much to save, start by stashing whatever you can. The sooner you start saving, the better.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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