How Much of Your Salary Should You Save Each Month?

Having a savings account can help give you peace of mind when times are tight. That’s why setting aside a portion of every paycheck is a good goal.

But if there’s not much extra cash after you pay your bills and buy groceries, you’re not alone. Statistics do vary, but between 55% to 63% of Americans are likely living paycheck to paycheck.¹ Sixty-nine percent of Americans have less than $1,000 in the bank and 34% have nothing in savings at all.² If you can relate, that’s OK. Any step you take to increase your savings helps, no matter how small.

Over time, that nest egg can help you pay for the fun stuff (think vacations and holiday gifts), as well as your retirement and your kids’ college funds. With so many goals to reach, it’s no wonder you’re thinking, “how much of my salary should I save?” Here’s the breakdown.

First, it’s helpful to start with a general guideline. The rule of thumb when it comes to how much of your income you should save is 20%.³ Why 20%? The premise is that you divide your spending and savings into different percentages and put 20% of your after-tax (“take-home”) pay toward savings. This standard was made popular by Massachusetts Senator and Harvard Bankruptcy expert Elizabeth Warren and her daughter Amelia Warren Tyagi in their book, “All Your Worth: Your Ultimate Lifetime Money Plan.”

There’s an exception though: If you have credit card debt with a high interest rate, you may want to work on paying that off first, which will help you save more money over time. Once the debt is paid off, then all 20% can go toward savings.

Below is a chart with 4 income levels and approximate take-home pay, including different ballpark savings goals per year and month.⁴ (You can also calculate your own after-tax income here.)

If you’re looking at these numbers and thinking, “no way,” don’t freak out just yet. Any amount you put toward savings makes a difference. And knowing these numbers gives you a goal to work toward over time.

Keep in mind that your 20% savings goal includes the money you’re saving for retirement. If your employer is automatically depositing money into your 401(k), you can put less into savings.

Determine how much you’re putting toward retirement each month by looking at your pay stub or electronic payment record. Then, subtract that number from the monthly savings goal you figured out above, and voilà, there’s your new monthly savings target.

Most experts recommend that if your employer matches your 401(k) contribution, you should contribute the maximum.⁵ The majority of plans require workers to save 6% or more in order to receive the full employer-matching contribution.⁶ And since 42% of companies match dollar-for-dollar⁶, that’s a benefit you don’t want to pass up.

If your employer doesn’t offer a retirement plan, you may want to set up a Roth or traditional IRA. Most experts recommend putting 10 to 15% of your income into a retirement account each year.⁶ So, if you’re making $50,000 per year and have no employer-sponsored retirement plan, you may decide to allocate 10% of your take-home pay to a standard savings account and the other 10% into an IRA. Talk to a financial planner or tax specialist to determine the type of retirement account that’s best for you.

Here are some simple ways to help you start saving up.

• Automate your savings: Set up an automatic savings plan so that a small, set amount of money is moved from your checking to your savings account on a regular basis. Even sparing $25 per month will give you a starter savings of $300 at the end of the year. Saving a small amount of money now, little by little, could add up to a significant sum in the future.

• Rethink direct deposit: Instead of having your entire paycheck directly deposited into your checking account, have your employer deposit a portion of your check into checking and the rest into a savings account.

• Put your spare change to work: There are apps that will take spare change on any amounts paid on a debit card and put them into savings accounts or even invest them. Those little amounts can add up over time.

• Dig through the couch cushions: Kidding! Sort of. Do you have a jar of loose change cluttering up the top of your dresser? Lug it to a coin sorting machine every so often, and then put that amount into savings. You may be surprised at how much you have.

Most importantly, consistency is key. No matter what percentage of your salary you save, if you deposit small amounts regularly, you may be able to build up a large chunk over time to achieve your goals.