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How Much Money Should I Save? The Basics You Need to Know

By August 30, 2021August 22nd, 2022No Comments

By Dannie Phan


Saving frequently is the best thing you can do to achieve financial security. Forget winning the lottery and getting unrealistic investment advice from so-called experts online—saving is where it’s at.

This is the part where you ask, “How much money should I save?” The quick answer is, as much as you can. But does that really answer your question? How would you know how much you need to save to get through an emergency? And what about saving for retirement?

How Much Money Should I Save?

You’ve probably heard of the 50/30/20 rule. Here’s how it breaks down:

  • Spend 50% of your paycheck on essentials. These are things like housing, food, transportation costs, utilities, insurance, health care, and everything else you need to survive.
  • Spend 30% of your income on wants. This is where your lifestyle expenses fit.
  • Spend 20% of your paycheck on debt repayment and savings. This is the chunk of money we’ll focus on throughout this article.

Keep in mind that this budgeting rule applies to individuals, couples, and families.

If you’re feeling lost and confused about your saving journey, this is a good place to start. Saving 20% of your annual income gives you a comfortable cushion. (We’ll get to what to save that money for further down in the article.)

Adjust Your Savings to Your Circumstances

You should always remember that the 50/30/20 breakdown is just a rule of thumb. You shouldn’t feel too restricted by it. If you have a high salary and want to save more of your monthly income, you should. The more you save, the better.

Likewise, if you can’t hit the 20% savings goal, don’t worry too much. You should still save as much as you can afford. Even $20 put aside monthly is better than nothing.

At the end of the day, personal finance advice should always fit with your circumstances. Creating your own plan based on your savings goals is a good idea.

…And to Your Life Goals

Think of what kind of life you want to live when you retire. After all, that is what you’ll mostly be saving for in the long term.

The more lavish the lifestyle, the higher your expenses, the more money you’ll need in your retirement savings to add to your Social Security pension checks.

Additionally, the earlier you want to retire, the higher your savings rate should be.

It’s all a matter of you setting your own priorities and working on a savings goal from there.

What Should I Save For? And When?

No matter what your financial goals may be, there are at least two situations most Americans save for throughout life.

Emergency Fund

Every adult, regardless of age, should have an emergency fund. It will protect you no matter what life throws at you.

For example, if you get into an accident and need to be rushed to a hospital, a rainy-day fund can help you pay your bills. Or, if you get fired and lose your income, an emergency cushion will buy you some time until you get back on your feet.

Unfortunately, many Americans rely on credit cards to cover these unexpected expenses. But that’s not a good move. Credit card debts rack up quickly and usually come with steep interest rates.

“How much should I save?” you ask. Aiming to save enough cash to cover your living expenses for at least 6 months—however much that may be for you—is ideal. Put some money from your paycheck aside every month until you reach that financial goal.


Having retirement savings will give you a better quality of life once you stop working. How much you should put away for retirement depends from person to person, and even financial experts can’t agree on the specific amount you should be spending.

Yet, a number does come up time and time again: you should save at least 15% of your income (that’s pre-tax income) for retirement. If you start at a relatively young age, that should give you the life that the average American in your tax bracket lives today.

Look into retirement plans, such as a 401(k) or a Roth IRA, to start saving. The best time to start is now.

Saving or Paying Off Debt?

If you have bad debt (that’s debt with an APR of over 10%), you should tackle that now. The faster you pay that off, the faster you can start adding to your savings plan.

Once those debts are all paid off, you can start creating an emergency fund while paying off your regular debt (e.g. student loans, mortgage, personal loans, and car loan payments). Your credit score should start to improve, too.

Then, you can focus on aggressively saving for a home down payment, retirement, your child’s college, or whatever is on your plan.

How to Boost Your Savings: 5 Tips

If you’re having trouble hitting your savings goal, these five tips can help you get there.

1. Open a High-Yield Savings Account

When you open a high-yield savings account, you get paid interest. Granted, interest rates average 0.50%, so you won’t get rich. But, if you add to that savings plan and let the money sit there for most of your life until you need it, you can withdraw more than you paid into it.

2. Take Advantage of Retirement Plans

A retirement account can get you tax benefits other savings plans can’t. Opening a 401(k) or a Roth IRA is a good plan—especially if there is an employer-match program at your workplace. If there is, you can get “free money” from your employer, which will certainly help you later in life.

3. Open a Goal-Specific Account

Besides retirement accounts, there are other tax-advantaged savings accounts—even though many don’t know about them. 

Opening a 529 savings plan, for example, will help you save for your children’s college expenses and give you some tax benefits. And, when you link it with a Upromise account, you even get unbeatable cash back perks.

Talk to a financial planner about what investment-based plan might fit your needs.

4. Set Up Automatic Payments

Set up automatic payments from your paycheck to your savings plan the day you get paid. This way, you won’t notice that extra cash in your account, so you won’t have the temptation to splurge it. You could do the same for your tax refunds and other financial windfalls.

 If you’re bad at sticking to a budget, this can truly help you reach your savings goals.

5. Start Small, Then Grow

The most important advice we can give you is to start your savings journey. The sooner you start, the more money you can squirrel away.

Don’t worry if you can’t reach the 20% savings rate on your current salary: save whatever you can. Then, adjust your lifestyle and income to your savings needs. With time, increase how much you’re saving until you reach a comfortable (but financially wise) amount to put aside.

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