How Much Should I Save from My Paycheck?

You know you need to save money. In fact, a healthy savings account and emergency fund can be one of the best indicators of financial health. But just how much is enough? Fifty bucks per paycheck? 20% of your income? What amount of money do you need to save so that you don't live paycheck to paycheck?

The experts are divided on what the ideal number is. However, there are a few popular guidelines that can help you get started on your way to a booming bank account.

The 50/30/20 Budget Rule

One of the most widespread guidelines, this rule breaks your paycheck down into three major categories and advises how much to put toward each. It works like this:

  • 50% of your post-tax income (your take-home pay) should go toward needs like housing, insurance, credit card debt, utility costs, gas etc. Basically, your living expenses.
  • 30% would be spent on “wants” like new clothes, entertainment and travel.
  • 20% goes toward debt or savings, whether that’s a money market account, your emergency fund, a retirement account or an investment like stocks and mutual funds.

Income-Based Savings

This idea is even easier to understand: simply save what you can, and increase your savings as your earnings rise. Use a budgeting app or free budgeting spreadsheet, or check with your bank or credit union to see if they offer a free budgeting tool (Desert Financial has one in Online Banking).

Put the costs of essentials like rent or mortgage, utilities, insurance, loans and credit card bills each on a separate line. Don’t forget to include other essentials like transportation costs and groceries in your budget — and no, video games or makeup are not essentials! These types of expenses should go in a separate line on your budget just for “spending money.”

Now, see what you’re left with. If you only have $5, see if you can squeeze some money out elsewhere. Could you:

  • Switch to a cheaper phone carrier
  • Eliminate subscription services (Netflix, Ipsy, BarkBox)
  • Give up fancy lattes
  • Cook at home more

Once you’ve trimmed the fat out of your budget, pledge to save whatever money is left over. That could be $10 a paycheck or $100, depending on your situation. If you’re on the lower end of that, don’t freak out! Your income will likely go up as you get more experience. In the meantime, you can always supplement your savings by working a part-time job or doing freelance gigs on the side.

The Cheat-Proof Method

Now that you have your savings goal figured out, you’ll need to find a way to make it happen. It’s great that you vow to set aside a set amount from your paycheck, but will you really remember to move your money? Or will you “accidentally” spend it on fast food or new headphones?

Automate it! If you have direct deposit through your job, have the dollar amount you want to save each paycheck deposited straight into your savings or money market account. This way, you won’t view that $5, $10, $20 or more as “extra money.”

Even if you’re not eligible for direct deposit, you can set up automated monthly transfers online with your credit union. Have your per-paycheck or monthly amount moved from your checking account into whatever savings vehicle you choose. When transfers are automatic, you won’t even miss that extra money!

The Right Answer

So, exactly how much should you save every month? We haven’t told you yet because there isn’t one “correct” answer.

If you’re flying solo with a big student loan bill, you may only be able to sock away a small amount. If you’re still living at home or with roommates, or you were able to land a sweet, high-paying tech job straight out of college, you may have more wiggle room in your budget. Remember, it’s better to start small than to not start saving at all.

By sticking to your budget and automating your savings, you’ll be well on your way to your financial goal — whether it’s to build up your emergency fund, save for retirement, make a big purchase, or just start saving more for the long term. So, pat yourself on the back. You already took a great first step just by reading this article!

The material presented here is for educational purposes only, and is not intended to be used as financial, investment, or legal advice.