{"id":1799,"date":"2016-07-11T10:00:15","date_gmt":"2016-07-11T15:00:15","guid":{"rendered":"http:\/\/www.investmentzen.com\/blog\/?p=1799"},"modified":"2023-03-14T22:13:47","modified_gmt":"2023-03-15T02:13:47","slug":"how-much-should-i-save-each-month","status":"publish","type":"post","link":"https:\/\/www.investmentzen.com\/blog\/how-much-should-i-save-each-month","title":{"rendered":"How Much Money Should I Save Each Month?"},"content":{"rendered":"

If you are wondering \u201cHow much should I save each month\u201d, I have the answer for you: as much as possible! Money buys many dreams and a lot of freedom<\/a>.<\/p>\n

But seriously, how much of your paycheck you should save is not really the question. The question is: what will you do with the savings?<\/p>\n

If you aren\u2019t motivated by an inspiring purpose, I can bet you won\u2019t be saving much.<\/p>\n

So picture your life in retirement or early retirement, the time you\u2019d get to travel, spend time with your kids, volunteer or work on a passion project\u2026 got it?<\/p>\n

Let\u2019s start saving!<\/p>\n

How Much Does The Average American Save Each Month?<\/h3>\n

\u201cThe best time to plant a tree was 20 years ago. The next best time to plant a tree is now\u201d<\/p><\/blockquote>\n

This Chinese proverb offers great wisdom in many areas of life, and it couldn\u2019t be more accurate when it comes to saving.<\/p>\n

The average saving rate among Americans is 5.4%<\/a> as of April 2016.<\/p>\n

Saving twice as much, or\u00a010% of your\u00a0monthly income is better, but it doesn\u2019t make you a hero. That means it would take you about a full year<\/strong> to accumulate\u00a0just a month<\/strong> worth of income. If you want to save your way to financial independence, you’ll have to do better.<\/p>\n

It would take 12 years<\/strong> to have just one year of expenses saved, and since you need 25x your annual expenses to retire on a safe withdrawal rate of 4%, you would have to work for\u2026\u00a051 years<\/a> before you can think about retirement!<\/p>\n

Go on, cry a little, I\u2019ll wait\u2026<\/p>\n

Should You Use The 50\/30\/20 Rule To Determine How Much To Save Each Month?<\/h3>\n

Many personal finance gurus describe the ideal income allocation as a 50\/30\/20 ratio.<\/p>\n

According to these experts, you should save 20% of your income every month<\/strong>, while 50% goes to fixed recurring\u00a0expenses such as rent, utilities or car payments, and 30% goes to flexible spending like food and entertainment.<\/p>\n

Some put it as 50% needs and 30% wants, but in some expensive cost of living areas, 50% can be your rent alone.<\/p>\n

The important part\u00a0if you want to go by this rule is to\u00a0try to get 20% in saving. And you can create sub-accounts for short term and long term saving, from holidays to car replacement to college funds to retirement.<\/p>\n

Note:<\/strong> If your short term savings isn’t in a high interest savings account, you’re basically turning down free money. Fix this today by signing up for a high interest savings account<\/a> today. Take advantage of bank bonus offers<\/a> wherever you can.<\/p>\n

But if you put 10% in short term savings, that sum will eventually get spent, leaving us with only 10% for retirement, and the same \u201clet\u2019s try not to work for the next 51 years\u201d problem.<\/p>\n

Is A 20% Savings Rate Enough If You Want To Retire Early?<\/h3>\n

Here’s the shockingly simple math to\u00a0early retirement<\/a>, which really just boils down to 1 factor:<\/p>\n

Your savings rate, as a percentage of your take-home pay<\/p><\/blockquote>\n\n\n\n\n\t\n\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t
Savings Rate (%)<\/th>Working Years Until Retirement<\/th>\n<\/tr>\n<\/thead>\n
5<\/td>66<\/td>\n<\/tr>\n
10<\/td>51<\/td>\n<\/tr>\n
15<\/td>43<\/td>\n<\/tr>\n
20<\/td>37<\/td>\n<\/tr>\n
25<\/td>32<\/td>\n<\/tr>\n
30<\/td>28<\/td>\n<\/tr>\n
35<\/td>25<\/td>\n<\/tr>\n
40<\/td>22<\/td>\n<\/tr>\n
45<\/td>19<\/td>\n<\/tr>\n
50<\/td>17<\/td>\n<\/tr>\n
55<\/td>14.5<\/td>\n<\/tr>\n
60<\/td>12.5<\/td>\n<\/tr>\n
65<\/td>10.5<\/td>\n<\/tr>\n
70<\/td>8.5<\/td>\n<\/tr>\n
75<\/td>7<\/td>\n<\/tr>\n
80<\/td>5.5<\/td>\n<\/tr>\n
85<\/td>4<\/td>\n<\/tr>\n
90<\/td>Less than 3<\/td>\n<\/tr>\n
95<\/td>Less than 2<\/td>\n<\/tr>\n
100<\/td>0<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n

Now if you save 80% of your income, that means you live on 20% of what you make, and every month, you set away 4 months of expenses. The money saved every quarter can cover your yearly expenses, and financial independence in that case is just 6 years away. That easy.<\/p>\n

Easy? For a vast majority, saving 80% is simply impossible.<\/p>\n

But how about saving 50% of your income? That would put financial independence 17 years away, which seems like a reasonable compromise.<\/p>\n

Can you really save 50% of Your Income?<\/h3>\n

Saving 50% of your household\u2019s income every month is more manageable, especially\u00a0if there are two of you. Many couples make it work on one salary. If you think about it, if your partner moves in with\u00a0you, that is your rent split in half, saving on expensive dates, and only a marginal increment in utilities.<\/p>\n

Another easy way to save a greater percentage of your income is to live on last year\u2019s salary. I mean, you managed to do so before you got that raise, didn\u2019t you?<\/p>\n

So bank your raise for a year, and next year, spend this year\u2019s income, while you save your new raise. It is not uncommon to get a raise of 3-5% per year, so that is a simple boost for your nest egg.<\/p>\nAnother easy way to save a greater percentage of your income is to live on last year\u2019s salary. <\/a><\/span>Click To Tweet<\/a><\/span>\n

Here’s How You Can Save More Money Each Month<\/h3>\n

Before you say that saving more money than you already do every month is impossible, let\u2019s look at a simple trick to save more without saving more<\/strong>.<\/p>\n

By that I mean that your disposable income will actually remain the same – AFTER you have funded your savings account.<\/p>\n

Sound impossible? \u00a0Not at all, here’s how to do it<\/p>\n