Is There an Ideal Amount of Money to Save Each Month Based on Your Income?
When it comes to building a healthy savings account, investing wisely and watching your day-to-day spending are money-saving steps that anyone can take. But is there a certain amount of money should you be setting aside each month depending on your income? That's a harder question to answer.
First things first: Don't get overwhelmed with the whole financial picture. As Colleen McCreary, chief people officer of Credit Karma, explains, you'll want to break it down into both long-term and short-term goals. "To figure out how much to save each month, you need to get clear about your short-term and long-term goals and decide how much money you need to allocate to each to achieve them." No matter if you're saving for retirement or a beachfront rental, having a goal and a dollar amount in mind is the first step to saving wisely.
As a general rule of thumb, McCreary advises to have at least three to six months' worth of your total monthly budget saved in cash. Today, with the uncertainties and the COVID-19 pandemic, experts suggest saving further out, such as nine months' to a year's worth of savings.
Expanding on that same rule, you may want to consider implementing the 50/30/20 rule budget. To break down the 50/30/20 savings tool is simple: In this method, McCreary explains, you spend 50 percent of your after-tax pay on needs, 30 percent on wants, and 20 percent on savings or paying off debt. Sounds easy, right? McCreary also suggests modifying the bucket needs based on your income and spending habits.
When saving, or trying to build-up savings, it's easy to get caught up in the numbers. "Before you overthink saving, try to just get started as soon as you can," suggests McCreary. "Even if that means a few dollars each week, just the act of getting started will kickstart your savings, which is an important first step."