Calculated Contributions: How Much Money Should You Save Each Month?

It feels good to see your savings account grow as you slowly build it up. $20 here, change from lunch there… even the little contributions add up.

But staring at your balance can also provoke anxiety: are you saving enough? Should you be putting more of your paycheck towards your savings? And how do you even know how much to save in the first place?

Good news: you don’t need to have the whole rest of your life figured out to know how much you should save. And there’s no better time to get started than right now.

Why Should You Be Saving?

Don’t feel bad if you don’t yet have a robust savings account — you’re not alone.

Nearly 70% of Americans have less than $1,000 saved, with 45% having absolutely no savings.

These figures are unfortunate, because without savings, you’re not equipped to deal with the many emergencies that life inevitably throws your way. If your car breaks down, your dog gets sick or your air conditioner stops working, you’ll need to fundraise, ask your family for money or go into debt.

But if you had savings built up, fixing the problem would be as simple as writing a check. It’d still be painful, but it’d be over and done with far quicker and easier.

Emergencies aside, you’ll also need savings in order to prosper in the long term. When it’s time to put a down payment on a house, you’ll be grateful for all that money you saved up over the years.

Your Savings Starting Point: The 50/30/20 Rule

It’s clear that you need to be saving, but how much should you be putting away each month?

We’ll start with a rule of thumb that’s been vouched for by some of the wisest financial experts out there: the 50/30/20 rule.

The rule states that your income should be divided as follows: 50% towards rent, utilities, food and other essentials; 30% for discretionary spending; and 20% towards your savings.

That 20% can be divided between multiple types of savings. You might decide to put 5% into your regular savings account, 5% into your kid’s college fund and 10% into your retirement fund — any type of savings counts.

The 50/30/20 rule isn’t set in stone. You could divert some of your discretionary funds to your savings or scale back your living expenses to put more money aside.

On the other hand, if you’re young and you live in an expensive area, you may end up taking 5% each from your discretionary money and your savings in order to pay your bills. And that’s fine — saving anything is better than saving nothing.

The point of the rule is to give you a starting point for budgeting your money and building your savings. As you continue through this article, you’ll learn more about the types of savings funds and how much money each should contain.

Types of Savings Funds and How Big Each Should Be

Emergency Fund

Your first priority when saving should be your emergency fund.

This could take many forms: your regular savings account, an online savings account, or even a stash of cash. The important things are that you have it and that it’s easily accessible in the event of, well, an emergency.

If you don’t already have an emergency fund, start with the goal of getting it to $1,000. That’s enough to cover many minor emergencies, such as car repairs or a trip to the vet.

Once you hit $1,000, try to build the fund up enough to cover 3 to 6 months of your living expenses. Should you lose your job, you’ll be able to pay for rent, utilities, groceries and gas for several months while you get back on your feet.

Building this emergency fund may require you to temporarily cut back on things like dining out and traveling. But it’s a wise sacrifice, and when you reach your goal, the satisfaction will be worth the pain.

Retirement Funds

It’s easy to overlook the fact that one day, you’ll be ready to leave the workforce and live out a golden retirement. But the sooner you start planning for that day, the better.

Experts recommend putting 10% to 15% of your income into a retirement fund, like a 401(k) or an IRA. These accounts are designed specifically for retirement savings and have several unique benefits.

Any money that goes into your retirement account is invested, letting it grow over time without you having to do anything. You can determine your risk tolerance for these savings: if you’re younger, you may want it invested in higher-risk funds, whereas if you’re older, it may be better to go for the low-risk option just to be safe.

Whatever you pick, no money should leave your retirement account until you’re retired. Not only will you have to pay a hefty penalty for withdrawing money before then, you’ll be missing out on the compounding gains that accumulate over time.

If putting 15% of your income into an account that you won’t be able to touch for decades doesn’t sound appealing, there’s a little trick you can use to lighten the load. Employer contributions count towards that 15%, so if you can, take advantage of your company’s 401(k) or IRA matching benefit.

College Funds

If you don’t have kids and don’t plan to, you can skip this section. But if you want to help pay for your childrens’ education, a special college fund is the way to go.

College tuition can range from a few thousand dollars a year for public, in-state schools to upwards of $50,000 a year for private colleges. Therefore, it’s tough to figure out how much you need to save, especially if your kids are still young and not sure where they’re going to college yet.

But most experts recommend putting up to 10% of your income towards your college fund, with the end goal of saving up ⅓ of your child’s 4-year tuition.

College tuitions are publicly available, so do a little math to find out what that goal entails: find the yearly tuition for a school, multiply it by 4, then divide it by 3 to get your ideal contribution. Do this calculation for a nearby state school, a distant state school and a private college, then average the three values out to get a ballpark number.

As with retirement accounts, any money you put into a 529 or Coverdell college fund will be invested, so it’ll grow on its own over time. But it can only be withdrawn by your child for education purposes, so make sure your emergency and retirement funds are built up first!

Specific Savings Goals

If you’ve got specific financial goals in mind, don’t just wait around for your balance to someday hit that number. You’ll have a much easier and quicker saving journey if you set realistic progress points and work hard to reach them.

For example, say you want to buy a house within the next 3 years, but you need to save another $30,000 for a down payment. You’ve got up to 36 months to reach your goal, so divide 30,000 by 36 to get your minimum monthly savings goal: $833.

Now you have a target and a timeframe to keep you motivated and on track to reach your goal.

If you don’t have a specific timeframe for a goal, try a few different ones and see what you think of the results. Suppose you want to go on vacation to Paris, and you know it’ll cost around $10,000, but you don’t have a set date in mind.

What if you tried to save enough for your trip in two years? $10,000 divided by 24 equals a savings goal of $416 a month.

Too much? Try three years — $10,000 divided by 36 is $277.

If that sounds more doable to you, then that’s your goal! Now not only do you have a monthly dollar amount, you’ll be able to stay motivated with the knowledge that Paris awaits you in three years’ time.

Tip: Try a Savings Challenge to Help You Meet Your Goals

The monthly savings goals laid out in this article can be extremely daunting, especially if you’re not used to saving. But with a little ingenuity, you can ease yourself into the practice of saving.

Savings challenges turn the act of not spending money into a game that’s actually quite fun! The idea is to cobble together small amounts from unexpected places, reducing the pain of saving.

Try this: every time you buy something, set the change aside in a jar.

If you buy a coffee at Starbucks that costs $3.45, round it up to $4, then take the remaining 55 cents and save it. And if you buy a $10.99 shirt from Target and pay with a $20 bill, that’s $9.01 into the savings jar.

This can be tricky if you pay for everything with a card, but you can calculate the change you would have received and, if it would have included a fiver, transfer $5 from your checking to your savings.

You probably won’t satisfy your retirement fund with these challenges, but every little bit helps. Plus, they’ll help you get into the habit of saving money wherever you can.