How Much of Your Paycheck Should You Save?

Have you ever wondered how much money you should be saving? Unfortunately, the answer to that question isn’t always as obvious as you might think.

Savings rates for individuals and families will vary based on a number of factors. Your income, expenses, where you live, and your personality type all play a role in how much money you can and should save each month.

In this article, we’ll discuss factors that can affect your ability to save, share some guidelines on how much of your paycheck you should save, and discuss ways to bolster your savings.

Table of Contents
  1. How Much Disposable Income Do You Have?
  2. What Do You Need to Save For?
  3. What Are Your Savings Goals?
  4. The 50/30/20 Savings Rule Explained
    1. Customizing Your Budget
  5. Tips for Increasing Your Savings Rate
    1. Figure Out Your “Why”
    2. Automate Your Savings
    3. Take Advantage of Employer Match Programs
    4. Go on a Spending Fast
    5. Sell Your Stuff
    6. Start a Side Hustle
  6. Final Thoughts

How Much Disposable Income Do You Have?

When deciding on a savings goal, the best place to start is to figure out how much disposable income you have. Some people lack money to save due to a low income, while others don’t manage their budget wisely.

In my case, it was the latter. Many years ago, when I was facing $25,000 in consumer debt, I decided to sit down and figure out how that happened.

There was no new furniture, fancy clothes, or vacations. I couldn’t figure out how my debt level got to be where it was.

After meticulously reviewing a few years of credit card statements, I found that my family and I had ‘nickeled and dimed’ our way into debt.

Going out to eat a few times a week, picking up a few extra items at the big box store, and not keeping track of how much we spent on groceries and other necessities resulted in a massive amount of debt.

The moral of the story is that it’s pretty easy to blow through your paychecks without saving a dime if you’re not paying attention and don’t have a plan.

This is where the dreaded “B word” comes in – Budget. Stop. Before you swipe left or head for the next article, let me make you a promise:

Once you start using a budget, you will find it freeing instead of smothering.

No, seriously. When you decide to start telling your money where to go, you will have more to spend on the fun stuff, not less.

Whether you use a zero-based budget template, a free budget template, or one of the many free budgeting software apps, you can create a budget today.

Write down a list of your monthly fixed expenses and things you want to spend money on and compare it to your monthly take-home income.

What Do You Need to Save For?

Everyone, regardless of income or where they live, should strive to save for the following:

  • Emergency fund
  • Retirement savings
  • Rainy Day Savings  

These three savings goals are non-negotiable. Everyone needs an emergency fund because emergencies always happen. The car breaks down, the furnace goes out. There’s a major medical emergency. You lose your job unexpectedly.

Begin setting money aside for the unexpected. Otherwise, you’ll end up using a credit card to pay for them.

I believe everyone should have retirement savings. You may counter that by telling me that you never plan to retire. However, you may not have the option to continue working.

Health or other issues may prevent that, so it’s important to at least have some money set aside for retirement.

Rainy day savings funds are mostly for fun: the unexpected vacation opportunity, that fun item you see at the big box store, or for that last-minute weekend getaway.

But in addition to these three savings goals, you may have others as well.

What Are Your Savings Goals?

Other savings goals will vary based on your life and your plans. For example:

  • College savings funds may be needed if you plan to go to college or if you plan to help pay for your kids’ college.
  • A house savings account is useful if you plan to purchase a home or remodel your current home.
  • Planning to retire early? If so, you’ll want to create an early retirement savings fund and plan.
  • Do you have other goals that you need to save for, such as purchasing a car, starting a business, or saving for a wedding

Take all of your life goals into account and decide which ones need to be planned in tandem with a savings fund or account.

Once you’ve answered those questions, you can decide how much of your paycheck to save.

The 50/30/20 Savings Rule Explained

Once you’ve determined what you’re saving for, it’s time to decide how much of your paycheck to save. A simple approach is to follow the 50/30/20 rule.

Here’s how it works:

  • Spend 50 percent of your income on fixed expenses (rent, mortgage, utilities, etc.)
  • Spend 30 percent of your money on wants (entertainment, travel, etc.)
  • Save the remaining 20 percent of your money.

If you don’t have any concrete savings goals right now, you can simply put 20 percent of each paycheck into a savings account (I recommend a high-yield savings account to earn the most on your money).

While investing your savings in riskier investments like stocks or ETFs can be a great way to earn even more income, it is important to keep short-term savings in low-risk savings accounts where your principal is protected.

For example, while it would be suitable to invest your retirement savings for the long term (stocks and ETFs), your emergency fund should be kept in a safe investment, like a savings account or certificate of deposit (CD).

Customizing Your Budget

The 50/30/20 rule may not work for everyone. If that’s the case, feel free to adjust the percentages to fit your specific budgeting needs:

  • 50/25/25
  • 50/20/30
  • 50/10/40
  • 60/30/10
  • 60/20/20
  • 70/10/20
  • 80/10/10
  • 85/10/5

You get the idea. Do whatever works for your income and your needs. The most important thing is that you are saving money.

Tips for Increasing Your Savings Rate

If saving money is harder than you thought it would be, implement the following tips to help you find more money to save.

Figure Out Your “Why”

Saving money – or reaching any goal, for that matter – is much easier when you have a purpose for doing it.

Why are you saving money? Is it to help your kids get a debt-free education? To make sure you can retire or retire early? To buy your dream house? Go on your dream vacation?

When you figure out your “why,” remember it when you’re struggling to stick with the plan you created. It will help you avoid the temptation to break the plan.

Automate Your Savings

Automating your savings is one of the best ways to save more money. You can do this by contacting your employer about having a portion of your Direct Deposit funds go into a separate savings account.

Or set up a preauthorized savings plan with your bank, where they remove a set amount each week or month and automatically transfer it to a savings account.

Treat your savings like a bill payment, except, in this case, you’re paying yourself. Then watch your savings balance grow and grow.

Take Advantage of Employer Match Programs

Many employers will match your retirement savings dollar for dollar up to a certain percentage. If you’re not already doing so, take advantage of any employer match program that’s available to you.

Talk with your manager or human resources department to see if they offer an employer match program for retirement savings. If they don’t, encourage them to start one or consider switching to a company that does offer those types of benefits.

Go on a Spending Fast

Spending fasts can be a great way to find some extra money to save. You can make your spending fast as short as a month or as long as a year. Customize it to what works best for you.

The goal: Don’t spend any money unless you absolutely have to. Spend as little as you can on necessities, and don’t spend anything on non-necessities. It won’t be easy, so it’s important to keep in mind the greater goal.

Sell Your Stuff

Do you have stuff you no longer use lying around your house, apartment, or storage unit? If so, it’s time to sell it and use the money you earn to pad your savings account!

There are many great apps you can use to sell your stuff online. Many of these apps, like Facebook Marketplace or Craigslist, will help you sell with little or no fees. Some items can be sold on a dedicated marketplace, like Poshmark for brand-name clothes or Reverb for musical instruments.

Another option is to reach out to family members and friends with a list of items you want to sell and see if anyone wants to buy your items.

Start a Side Hustle

Another option for finding more money to save is to get yourself a side hustle. The right side hustle is a perfect way to bring in extra cash during your spare time.

You can do side hustles from home or pick up a part-time job at a local restaurant or retail store. Another option is to sign up for a gig app and deliver restaurant meals or drive people around for Uber or Lyft. 

Here are some other side hustle examples:

  • Walk dogs, wash dogs, or clean up after pets.
  • Mobile car washing or car detailing
  • Lawncare/landscaping
  • Residential or business cleaning
  • Computer repair

The possibilities are endless. Just make a list of your skills, and then look for ways to earn money with those skills. Eventually, you’ll be able to find the right side hustle for you.

Once you get your first side hustle going, you can get to work on creating a side hustle stack and really bolster your savings account.

Final Thoughts

Don’t let anyone tell you that saving money is easy because it isn’t. Many people with high incomes struggle to save. No matter how much money you make, if you don’t have a plan, you will find ways to spend it.

Too many Americans are living paycheck to paycheck. But if you start saving a portion of every paycheck, you can break the cycle and build a better financial future for yourself.

Use the tips I shared above to find extra income to save and build savings vehicles that will ensure you’re on track to reach all of your goals.

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About Laurie Blank

Laurie Blank is a blogger, freelance writer, and mother of four. She’s psyched about teaching others how to manage their money in a way that aligns with their values and has been quoted in Bankrate.

She's a licensed Realtor with Edina Realty in Minneapolis, Minnesota (also licensed in Wisconsin too) and has been freelance writing for over six years.

She shares powerful insights on her blog, Great Passive Income Ideas, that will show you how you can create passive income sources of your own.

Opinions expressed here are the author's alone, not those of any bank or financial institution. This content has not been reviewed, approved or otherwise endorsed by any of these entities.

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