The big question is how much you should save every month. For many people, the answer to that question is simple: Save as much as you can. There are a lot of variables to consider, including how much you earn and how much you want to pay off your debt in a year.
The first step is figuring out what you’re comfortable with. If you’re young and starting out, you may be able to afford to save more. If you have kids or other responsibilities, it might make more sense to cut back on spending.
If your goal is to retire early and live off your investments, then saving $1,000 a month may be enough or it may not. If you’re trying to build wealth through stock market investing or real estate, saving $100 a month might be enough or it might not be.
How much should you save every month? At least save 20% percent of your gross pay.
If you’re like me, you probably don’t have a crystal ball and can’t tell exactly how much your future self will need to save.
But if you want to build a retirement nest egg with some cushion, you need to start saving early. And the earlier you start, the less room there is for error.
So what’s an appropriate amount of money that you should be putting away each month? There are many factors that go into this decision, but generally speaking, the rule of thumb is that you should save enough that it takes one year of work at your full-time job just to make up for all of your expenses (like rent, food and utilities) in retirement.
So if it takes more than one year of work at full time to cover these expenses, then saving more would help accelerate your savings rate and make sure that you don’t run out of money before retirement.
There are two important elements to consider when it comes to saving.
How much you need to save depends on several factors, including your income and the amount of money you want to have available for emergencies. Here’s a handy guide that can help you determine what you need to put away each month:
Your income: If your current income is less than $50,000 per year, then start saving at least 10 percent of your gross pay. If your income is between $50,000 and $75,000 per year, then start saving 15 percent of gross pay. And if your annual income is more than $75,000 per year, then start saving at least 20 percent of gross pay.
The amount of money you want to have available for emergencies: This may vary depending on whether you live in an area prone to natural disasters or if someone else will be providing funds for emergencies (such as healthcare or car repairs).
If possible, it’s generally recommended that everyone in a household contribute at least 10 percent (or some other percentage) of their net annual income toward savings goals each month even if they don’t plan on needing those funds immediately.
If your salary is stable, you can save just enough to cover those expenses and maybe a little more. But if your income is variable say, it’s based on commissions or bonuses then saving more may make sense.
It’s also important to consider the risk involved with saving too little; if something goes wrong and you don’t have enough savings, it could be difficult for you to get back on track.
What’s the ideal way to save for retirement?
It depends on your age, income and lifestyle. Here’s how much you should be saving each month based on your circumstances:
If you’re under 30: You might need about $1,000 per month to cover basic living expenses in retirement.
If you’re 30-65: You’ll need about $2,000 per month to cover basic living expenses in retirement. If you’re over 65: You’ll need about $3,000 per month to cover basic living expenses in retirement.