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If your goal this year is to save, then putting away a little of your paycheque every month will quickly accumulate into a solid savings account. But how much should you put into savings each month? And how do you start?
This article explores the different approaches to monthly savings and offers guidelines and tips on how to save some of your paycheque every month.
If you’re ready to start your savings journey and build long-term wealth, read on!
Why Should You Save Money From Every Paycheque?
Saving money not only allows you to build an emergency fund for unexpected expenses but also helps you achieve your long-term goals, such as buying a house, starting a business, or retiring comfortably. However, there is no one-size-fits-all answer to how much you should save each month.
How Much Should You Save Every Month?
How much you save every month will depend on your goals, income, and current financial stability. Below, we explore different methods to determine how much to save monthly.
How To Save According To Your Goals
Many people save to achieve a specific financial goal. For example, if you want to make a down payment on a house, start a business, or even retire early, you’ll most likely need to build up some savings first.
Once you know your saving goal, you can break your goal into more manageable steps. For example:
- 1. Let’s say you want to save for a $50,000 down payment on a house. You decide you want to buy a house within two years.
- 2. You calculate that this would require you to put away over $2000 each month, which is impossible on your monthly income (e.g. $4,569).
- 3. Instead of aiming for two years, you re-adjust your timeline to five years. With five years, you realize you could put away $833 a month and still achieve your goal.
Having a fixed amount and timeline in mind for your savings can help you make difficult budgeting decisions and keep you motivated. Using a simple timeline + amount calculation can help you determine how much money to put aside each month.
How To Save According To Your Income And Expenses
Before you commit to saving a certain amount of your paycheque each month, first determine how much extra money you have to work with each month. Start by assessing your income and expenses. To do this, set up a small budget that includes the following:
- All your income: This includes fixed income, freelance work, side hustles and anything else that gives you a steady monthly income.
- All your expenses: Include your necessities, such as rent, utilities, groceries, and insurance. Don’t forget to include money for emergencies so you don’t feel tempted to dip into your long-term savings when something unexpected happens.
Once you have a clear picture of your income and expenses, subtract your expenses from your income to determine your discretionary income. This is the amount of money you have left over after covering your necessary expenses.
How Much To Save According To Popular Budgeting Formats
There are several saving-focused budgeting formats that provide a rough guideline for savings. For example, the 50/30/20 rule suggests that you save 20% of your monthly income.
If you’re working with a budget of $4,569 from the previous example, then 20% comes to $913 a month. Keep in mind that the 50/30/20 rule is a guideline, not a rule, and if 20% is too steep for your income and current expenses, then feel free to adjust it to suit your goals, timeline, and income. The important thing is that you remain consistent and put away money every month while maintaining a functional financial balance.
How To Save Money From Every Paycheque
Saving money from every paycheque requires discipline and commitment. Here are some strategies to help you maximize your savings potential:
- Automate your savings: It’s easy to set up an automatic payment into a savings account each month. This can help you stay committed to your savings goals without too much effort on your part.
- Make small sacrifices: Paying money into your savings each month can leave you with a lower quality of life, but it doesn’t have to! Find alternatives to popular expenses, such as eating out, going shopping, or paid entertainment. Consider packing your lunch instead of eating out, cancelling unused subscriptions, or finding free or low-cost alternatives to expensive activities.
- Track your progress: Tracking your progress and seeing your savings grow each month can be very motivating. Set aside time each month to assess how much you saved and adjust your savings plan if necessary.
- Put your savings in a high-interest account: A high-interest savings account can help you save money by paying monthly interest into your account. You can choose to reinvest the monthly interest payments and accumulate just a little bit more each month. This can make a big difference long term.
Remember, you have the final say on where your money goes. Get creative and find a method to save that works for you. With that in mind, let’s examine some common mistakes to avoid when saving.
Mistakes To Avoid When Saving Money
While saving money is important, there are some common mistakes you should avoid:
- Neglecting an emergency fund: It’s crucial to have an emergency fund to cover unexpected expenses. Don’t prioritize saving for long-term goals at the expense of building an emergency fund.
- Relying on fixed savings amounts: While it’s important to have a savings goal, don’t limit yourself to saving a fixed amount from every paycheque. As your income and expenses change, it’s important to adjust your savings accordingly.
- Not taking advantage of employer-matched contributions: If your employer offers a retirement savings plan with an employer match, take full advantage of it. Employer-matched contributions are essentially free money, so be sure to contribute enough to maximize the match.
These mistakes can be easy to overlook and cost you money if you don’t specifically aim to address them. Remember to be thorough with your savings plan, and account for any eventualities to ensure your savings plan goes without any issues.
Final Thoughts - Building A Savings Habit
If you want to save a lot of money, start where you are. Putting away a little bit of money each month will accumulate quickly, and before you know it you’ll be putting a down payment on the house of your dreams, or starting your own business. Whatever your goals, remember to save responsibly and re-adjust your saving plan wherever necessary. Happy Saving!
