A penny saved is a penny earned, but a penny saved today is a penny earning more. It is important to start saving as soon as possible for events such as retirement due to the impact of compounding. If you start saving now you will need to save considerably less than if you wait a few years. Use this calculator to determine how much extra you will need to save if you wait.
How Much Should I Save Each Month?
You’ve probably heard that you should be saving money each month, but have you ever wondered what percentage of income you should save? How much do you need to put aside to have enough? Saving too little each month won’t help you when you need it, but trying to put aside too much can cut into your ability to fully live in the present and enjoy the life you want to live today.
Here are a few things you will want to consider when deciding how much of your budget should go toward savings:
- What are you saving for? At the very least, you should be saving money for an emergency fund so you have resources in case of a problem, and you should be saving for retirement. Besides these two savings concerns, consider your short-term and long-term goals. Long-term goals may include saving for a home, while short-term goals may include saving for new tires for your car. Consider how much money you need to put aside for each goal and how long it will take you to reach that goal depending on the different amounts you can put aside each month.
- What is your financial situation? If you have high-interest debts, such as credit cards, the amount you owe will grow faster than the amount of interest you earn on savings. You may want to direct some extra money toward debts temporarily while growing your savings at a more modest rate. If your earnings are mostly consumed by living expenses such as food, taxes and housing, you may need to focus on earning more or on reducing expenses so you have money to set aside for savings.
- How old are you, and when will you need your savings? If you are saving for retirement, for example, and are just at the start of your earning life, you may be able to put aside less that someone in their 40s because you will have more time to save. In general, the younger you are, the more you can rely on interest earnings to help you reach your goal.
A general rule of thumb is to save at least 20% or more of your after-tax income. This allows you to save both for long-term and short-term goals.
If you need to find ways to save more money and ways to budget more effectively, Money Help Center has free and unbiased calculators to help you. Plug in different numbers today to consider different possibilities and to give yourself an advantage when it comes to your finances.