Some people throw around the phrase “you only live once" to justify spending with abandon. (A new pair of shoes or a pricey purse? Sure, because YOLO!) But if you think about it, isn't a true YOLO lifestyle one where you're intentional with your spending and savings so you'll have money available for the things that are most important to you?
The problem is, if you don't think about saving money until you're in need of cash for a specific life event—such as a dream vacation, wedding or birth of a child—you'll likely come up short. To truly live your best life, it's important to build a habit of saving early on, even if you're earning an entry-level salary.
But how much money should you save each month? Is there a "right amount" to sock away at your age and stage? Some experts suggest saving 10% of your income, while others swear by the 50/30/20 budget rule that socks away 20% of your earnings for savings. Ultimately, how much money you should save each month depends on your unique financial goals and situation. Follow these steps to determine your ideal monthly savings.
1. Pinpoint Your Savings Goals
Savings are only a means to an end. After all, there's not much point in stockpiling cash if it's not going to serve a purpose. So, before you can put a dollar figure on your monthly savings, it's critical that you figure out what exactly you're saving for.
Savings goals fall into two broad categories: short-term and long-term goals, based on how quickly you might need to dip into your stash. Generally, if you may need to spend the money within five years, it's considered short-term savings. Finances you expect to leave untouched for at least five years or more are considered long-term savings.
Short-term savings goal examples:
- • Building an emergency fund
- • Taking a vacation
- • Hosting an event, such as a wedding
- • Buying a car
Long-term savings goal examples:
- • Funding your retirement
- • Coming up with a down payment on a home
- • Pursuing a college education
- • Paying down debt
It's important to identify specific savings goals so you can choose the right types of accounts for your savings. For example, a high yield savings account may be perfect for short-term savings like an upcoming vacation, but for longer-term goals, you may want to consider certificates of deposit (CDs), which can offer higher yields over longer periods. And when it comes to retirement savings, it might be best to go with a tax-advantaged IRA.
2. Do the Math
Once you've identified one or more savings goals, you can figure out how much you need to save each month to achieve those goals within your expected timeframe. If you need some help crunching the numbers, you can use our savings goal calculator to make a plan for how much to save.
So, for example, if you have a short-term goal to take a $3,000 European vacation within the next year, you might decide to save $250 each month to meet that goal ($3,000 ÷ 12 = $250).
Of course, that assumes you leave your savings under your mattress or in a checking account that doesn't pay much interest. If, however, you put your savings into a high yield savings account, you might meet or even exceed your savings goal within that timeframe—bringing your goal a full month closer to reality.
3. Take Stock of Your Situation
While it would be wonderful to sock away enough in monthly savings to meet all your short- and long-term goals, that's not always realistic. So, in addition to deciding what you're saving for, it's important to consider the following personal factors when determining how much to save each month.
Income and expenses
The most you can save at any given time is the difference between your take-home pay and all your necessary expenses. So, if you bring home $2,500 per month and you pay a total of $2,250 for rent, utilities, transportation, basic groceries and any loans or debt service payments, the maximum you can save each month is $250—and that's before spending on clothing, entertainment or any other variable costs.
In that kind of scenario, saving even $50 per month would be a great start. The important thing is to develop a habit of saving, and then increase the amount when your salary goes up or you increase your work hours.
Lifestyle and spending habits
Whether you're a travel nut who's always looking for the next destination or a car enthusiast who likes to replace vehicles every couple of years, you'll need to save more money for those endeavors than a homebody who prefers to walk or take public transit. Neither lifestyle is objectively better or worse, but the latter is certainly less expensive and therefore requires less in the way of savings.
Age and life stage
As you move through milestones in life, saving can be easier or harder depending on your circumstances. A young adult still living at home, for example, should be able to save a much greater portion of their earnings than a parent faced with the costs of raising young children. Conversely, someone established in their career in midlife may have the bulk of those parenting expenses behind them, or a dual-income couple without kidsmay be able to afford to boost the percentage of their income they save to prepare for retirement.
4. Choose Your Savings Rate
There are various rules of thumb that experts suggest for a savings-to-income ratio, including the following:
- • 10% to 15%. Saving 10% of your income is a good, straightforward target, as it's easy to calculate and still gives you 90% of your earnings to put toward various expenses.
- • 50/30/20 rule. This budgeting guideline for spending and saving advises that you spend no more than 50% of your income on basic needs (rent, food, transportation, etc.), spend 30% on “wants" you could potentially do without (entertainment, convenience services, etc.) and save the remaining 20% of your earnings.
- • Custom savings approach. As noted above, there are many factors that can affect your personal savings rate, so it's possible a one-size-fits-all guideline won't add up for you. Depending on your income, expenses, age, lifestyle and financial goals, saving even 10% might be too difficult for the time being. Itemizing your goals and creating or updating a budget can help you determine what percentage of savings is right for you at any given time.
Sample monthly savings amounts by income level
| Annual net income |
5% monthly savings |
10% monthly savings |
15% monthly savings |
20% monthly savings |
| $25,000 |
$104 |
$208 |
$313 |
$417 |
| $35,000 |
$146 |
$292 |
$438 |
$583 |
| $45,000 |
$188 |
$375 |
$563 |
$750 |
| $55,000 |
$229 |
$458 |
$688 |
$917 |
| $65,000 |
$271 |
$542 |
$813 |
$1,083 |
| $75,000 |
$313 |
$625 |
$938 |
$1,250 |
5. Boost Your Savings
If you're struggling to carve out savings from your budget—or you want to see if you can find additional savings opportunities—the following tips can help.
Cut expenses and reduce debt
Start by looking at your spending habits and recurring monthly expenses to see if there are any areas where you can cut back. For example, there may be subscriptions you can do without or services you pay for that you could learn to do yourself.
In the case of necessary monthly costs (such as phone service), ask your service provider for a better deal or look for a cheaper alternative. Then, use these savings to pay down high-interest debt (such as unpaid credit card balances) to lower your interest payments and open up even more room in your budget for savings.
Increase your income
See if you can pick up extra shifts, find a side hustle or sell unneeded items to generate additional money that you can add to your savings. Do the same with “occasional" income, such as overtime pay, bonuses and tax refunds. And don't forget to open the right savings accounts to maximize your interest income, which can help you achieve your goals faster.
Pay yourself first
If you wait until the end of the month to set aside the amount of money you've chosen to save, you run the risk of accidentally spending it on something else. Instead, prioritize your savings by setting up automatic transfers from your checking account to your savings account at the start of each month or on your paydays.
Consider investing
Once you have a solid savings plan in place, you may want to think about putting some of those funds into investments that may offer greater returns—especially when it comes to your long-term savings goals. Begin by considering these seven lessons about investingand familiarizing yourself with common investing terms.
6. Don't Delay: Start Saving Today!
If you have a plan and stick to it, saving money doesn't have to be daunting. So, go ahead and draw up a list of your financial goals, assess your current circumstances, create a budget and choose a percentage of your income that seems reasonable for you to save.
Then, open the right types of accounts for your savings, such as Riverstones Vista Capital 's certificates of deposit or high yield savings accounts, and put your savings on autopilot by setting up automatic transfers. Once you've established a steady habit of monthly saving, look for ways to slowly increase those amounts as you're able. The important thing is to get started now—because you only live once.
Tamar Satov is a freelance journalist based in Toronto, Canada. Her work has appeared in the Globe and Mail, Today's Parent, BNN Bloomberg, MoneySense, Canadian Living and others.
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