Saving money is an essential part of financial stability and security. However, determining how much you should save per month can be a tricky question, as it depends on various factors such as your income, expenses, financial goals, and lifestyle. In this blog post, we will explore some guidelines that can help you determine how much you should save per month.
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How much should I save per month?
Determine your financial goals
Before you can determine how much you should save per month, you need to identify your financial goals. Do you want to build an emergency fund, save for a down payment on a house, pay off debt, or save for retirement? Each goal will require a different amount of savings, so it's essential to prioritize your goals and set specific targets.
For example, if you want to build an emergency fund, financial experts recommend saving three to six months of your living expenses. If your monthly living expenses are $3,000, you would need to save at least $9,000 to $18,000 for emergencies.
If you want to save for a down payment on a house, you'll need to determine how much you need to save and how long you have to save. Suppose you need a down payment of $50,000, and you want to buy a house in five years. In that case, you'll need to save approximately $833 per month to reach your goal.
Calculate your monthly expenses
To determine how much you should save per month, you need to know how much you are spending each month. Start by calculating your monthly expenses, including housing, food, transportation, utilities, entertainment, and any other essential expenses.
Once you have a clear understanding of your monthly expenses, you can determine how much you can realistically save each month. Financial experts suggest that you should aim to save at least 20% of your after-tax income for your financial goals. For example, if your after-tax income is $4,000 per month, you should aim to save at least $800 per month.
Evaluate your lifestyle and spending habits
Your lifestyle and spending habits can have a significant impact on how much you should save per month. If you are spending a lot of money on discretionary expenses such as dining out, shopping, and entertainment, you may need to re-evaluate your spending habits and see where you can cut back.
Financial experts suggest using the 50/30/20 rule to budget your income, where 50% of your income goes towards essential expenses, 30% towards discretionary expenses, and 20% towards savings and financial goals.
If you find that you are struggling to save enough money each month, consider making some lifestyle changes, such as cooking at home more often, reducing your subscription services, or cutting back on expensive hobbies.
Adjust your savings rate over time
Your savings rate may change over time as your financial situation changes. For example, if you get a raise or a new job with a higher salary, you may be able to increase your savings rate.
On the other hand, if you have unexpected expenses or a decrease in income, you may need to adjust your savings rate and cut back on your expenses.
It's essential to regularly evaluate your savings rate and adjust it accordingly to ensure that you are on track to reach your financial goals.
Use a budgeting tool
Using a budgeting tool can be helpful in determining how much you should save per month. Budgeting tools such as Mint, Personal Capital, and YNAB can help you track your expenses, set financial goals, and create a budget that works for your income and lifestyle.
Using a budgeting tool can also help you identify areas where you can cut back on expenses and increase your savings rate.