How Much of My Paycheck Should I Save?

Sometimes it feels difficult to part with the money earned from a paycheck, but without setting some aside, you can’t build a savings, invest in retirement and 401k accounts, or help yourself become debt free - which are all crucial to healthy monetary habits and financial wellbeing. However, paychecks vary from both person to person and, possibly even day to day depending on your job - how much money do you set aside for savings and other forms of financial investments? 

There are a few different numbers that various finance experts throw around as far as how much you should be putting away into savings from every paycheck. There’s the 20% rule, the 50%-30%-20% rule, but the 20% rule is by far the most well-known and the most used when people start putting aside money for savings. So what’s the best option? Let’s break it down. 

What are your savings goals? 

Let’s get real for a minute - it’s going to be nearly impossible for you to establish a consistent savings plan and stick to it, when you’re not sure what goals you’re working toward, and this goal needs to be written down so that it’s sort of set in stone, per say. 

Are you currently working towards saving for a house, building your emergency fund? Here’s a list of the most common savings goals, to give you an idea of where you may sit right now: 

• Emergency fund
• Pay off debt
• Save for a house
• Save for retirement
• Pay off student loans 
• Save for college
• Save for a car
• Pay off credit card debt 

Some of these could be lumped into a general category, but seeing them laid out like this can help you visualize common savings goals and get an idea of what yours are currently - because setting a savings goal is the first step, before determining how much to set aside. 

You want to set a savings goal first because saving for a car is going to be a vastly different amount than saving for a down payment on a house - so you want to know your end goal and end amount in order to structure your savings plan around that. 

How much should you save from your paycheck every month? 

Well, as I mentioned before, there are technically two different popular schools of thought when it comes to how much to set aside every month - the standard and pretty well-known 20% rule and the lesser known 50% - 30% - 20% rule. 

Each one essentially has you putting about 20% of each paycheck away into savings monthly - but let’s be honest, most people can’t afford that 20%. To be scarily precise, two-thirds of Americans are living payback to paycheck, meaning that the 20% is virtually impossible to obtain while trying to maintain the status quo. 

So, what’s the 50% - 30% - 20% rule? This rule breaks up your savings into three different categories, needs, wants and savings - to me this seems a bit redundant, especially since creating a budget typically takes care of the needs and wants. All that’s really left then is the savings, so the 50 - 30 - 20 rule is a lot of extra steps that become unnecessary. Your living expenses and debt payments should be included in a budget - which comes before money set aside for a savings account.

What’s a realistic amount to save from your paycheck every month? 

Realistically speaking, instead of following a standardized 20% rule, you can create a plan for yourself that consists of smaller steps leading to the ultimate savings goal you set originally, and you’ll then be well on your way to financial freedom and well-being.

It is easier to start with a smaller goal and work your way toward the big savings goal you set, than to sell yourself short and become inconsistent with your savings plan. 

You also need to ensure that your essential expenses, including rent or mortgage payments are covered before you can really dig into how much of your paycheck you can save. You may notice that you need to get a second job to increase your take home pay.

Building up to your big savings goal - start with a smaller savings goal

When you start by setting a smaller savings goal - it’s pretty standard to set the amount at around $1,000 - if this is possible for you, this is a great number to start with but to make this impactful and allow you to stick to it, you want to set a end date to reach that goal, let’s say 3 months is what you’re aiming for and you get paid bi-weekly - you’ll want to make sure then you’re setting aside $166 from each paycheck. 

It’s important to adjust this number 3 months is not doable for you, but setting that first $1,000 savings goal will ultimately help you reach your true savings goal you set for yourself earlier.

However, there’s another caveat to building up to your big savings goal, and this is one that you know I’m passionate about - which is why I stress to avoid this at all costs, but if you already have it, you have to get rid of it before you can really dive deep into building financial wealth and stability. 

Pay off ALL debt 

It hurts to hear I know, but the truth is, saving is pointless if you’re still buried in debt, which means you need to pay off your debt first before you can really put in the work towards your big savings goal. Come up with a debt repayment plan that allows you to actually take your monthly income and save it.

Just as it’s almost impossible to reach your savings goals when you’re living paycheck to paycheck, it’s again almost impossible to reach your savings goals when you have debt. Once you have that $1,000 saved up from the previous step, put that towards your debt, and keep working at it using the snowball method until it’s all paid off and you’re ready to dive deeper into that big goal. 

Paying off debt is something that a lot of people struggle with, and you’re not alone - but it’s so incredibly important to get your debt paid off before you start to tackle the big savings goals. If you do this in the wrong order, it can impact your progress and lead to you not meeting your goals. 

Start saving more and investing

Once you have your debt paid off, it’s time to start setting aside more money for an emergency fund and to make sure that you have all your expenses covered for about 3-6 months out from today. This way, if anything happens, you’re covered for awhile until you can get back on your feet. This is a great time to open a high yield savings account to save money in a way that builds wealth and gives you a return on your savings account.

After you have your emergency fund built up, set more aside and learn how to invest your money to make it work for you instead of just sitting around doing nothing. Investing your money could range from buying stocks, or putting your money into a 401k, other retirement accounts or investment accounts - this will allow it to work for you and have your money make money in the long run. 

What if I can’t save that much? 

If you’ve made it to this point and being able to save this amount of money and put a decent amount aside from your paychecks feels overwhelming and impossible - I get it, we’ve all been there and as I mentioned earlier two-thirds of Americans are living paycheck to paycheck, so you’re not alone. That being said, there are other things you can do to help build your wealth and savings if your paycheck from your job isn’t enough to live off of and save from. 

Get a side hustle or another job

Let me just tell y’all getting a second job or finding a lucrative side hustle can bring in just the right amount of extra income a month you’re looking for to help reach your savings goals and pull you out of debt. Obviously it’s not the most ideal, and if you could solve all your financial problems with just one job, that would be best - but it’s not always plausible, and that’s okay. 

Getting a second job doesn’t have to be a part time job on nights and weekends, you can start a side hustle that aligns with your passion, or something you love to do creatively - besides, the most aligned a side hustle or second job is with your passions and interests the easier it’s going to be to stay motivated to keep that income flowing.

Lower unnecessary expenses

I want to clarify before we go over this one, I mean cutting unnecessary expenses - so not water and heat, and rent, etc. When I say unnecessary expenses I mean things like Starbucks, shopping, streaming services - things that you don’t need to cover your basics that can help free up income. 

Research shows that the average person spends upwards of $18,000 a year on nonessentials - that’s $18,000 a year you could be putting into savings, retirement, or investing. 

So, if you’re looking to cut unnecessary expenses, really look at your coffee consumption from places like Starbucks and Dunkin’, going out to eat instead of making dinner at home, and even going out drinking with friends adds up quickly. These three categories can really help you cut expenses and add more towards savings. 

Let’s Recap 

Saving money is something that can be intimidating and hard for everyone, especially when you’re not sure how much to save or where to put it. The biggest thing to remember is you want to know what you’re working towards, so coming up with a savings goal is the first step - do you want that to be saving for a new house, new car, for college, etc. Choose a savings goal that aligns with you and your current position and goals in life. 

The average person lives paycheck to paycheck, so it’s no surprise that saving can seem impossible when you can barely afford the necessities of life - but there is still a way you can save and make sure you’re reaching your financial goals. 

As difficult as it may be, you can get a second job - whether it be a side hustle or a part time job during nights and weekends, having that extra set of income can truly help you reach your savings goals faster than you think. 

If you take one thing away from this though, it should be that no matter what it’s important to start with a small goal to reach first before you try to hit the big savings goal, and if you have debt you want to pay that off first before you attempt to tackle anything else! Debt weighs you down and building a savings while still in debt will do you no good! 

Once you’ve got that goal achieved and debt paid off, it’s time to start working towards that big goal - whether you need to get a second job, adopt a side hustle, cut unnecessary living expenses back, or even sell some things to get ahead just a bit, ensuring you’re staying consistent and motivated is the most important part of saving.