Saving money from each paycheck can help prepare you for life’s most expensive curveballs. Experts typically recommend setting aside around 20% of each paycheck for savings, according to Equifax. However, the exact amount you save will vary based on your income, monthly expenses, and personal goals.
These strategies can help you prioritize your savings and determine how much to set aside from each paycheck.
No matter how much you budget towards savings, you’ll need to divide your savings from each paycheck across multiple goals: your emergency fund, retirement savings, and longterm savings.
- Emergency fund. First, be sure that you can meet unexpected financial challenges head-on by building an emergency savings fund equal to between three and six months’ worth of expenses. Estimate the size of your fund by calculating your monthly mandatory expenses — essential costs like rent or mortgage payments, utility bills and groceries. Then, set a goal to save between three and six times that amount. You can dip into this fund for unexpected bills, medical emergencies and job or other income loss. Just remember to start replenishing your emergency fund after you tap into it.
- Retirement. It’s also vital to set aside money from each paycheck to put toward retirement savings. Many experts recommend saving between 10% and 15% of your income each year for retirement. However, the exact amount you save depends on your income and retirement goals. You can plan to spend about 80% of your income for each year of retirement. Although some of this amount will be covered by federal benefits like Social Security and Medicare, you’ll need to make up the rest through your own savings and investments. With that in mind, make regular contributions to your retirement accounts in an amount you can afford.
- Long-term savings. A portion of your paycheck should also go toward a dedicated long-term savings fund, which will cover significant expenses you’ll encounter throughout your life. This is the place to save for a home down payment, renovations, tuition bills, family planning, travel and more.
Remember: When it comes to savings, every bit counts. Making room in your budget to save money each month is a key first step toward reaching your financial goals.