How Much of a Paycheck Should You Save
Every salaried person receives a paycheck on payday, but only a few of them know how to and how much of my salary should i save every month due to the financial illiteracy and lack of knowledge. If it is the only source of your income, then it is crucial to save money from your salary. It is essential to save a small portion of your income every month to handle possible future financial uncertainties, goals, wealth building, and peace of mind.
Here, we will look at different scenarios, examples, and rules to understand how much you can save from salary on different levels of income, expenses, and goals and how to improve your saving.
Table of Contents
How Much of My Salary Should I Save as Per Budgeting Rules
There are many different budgeting rules to help decide how much of my salary should i save. Let us look into all of them one by one.
50/30/20 rule: According to the 50/30/20 rule, you can spend 50% on necessities, 30% on wants, and save 20% of your salary.
70/20/10 rule: You can use 70% of your salary for living expenses, 20% for savings and investments, and 10% for debt payments and donations.
60/20/20 rule: 60% of your salary goes toward essential needs, 20% toward investment and savings, while the other 20% goes toward discretionary spending.
80/20 rule: You can spend 80% on monthly expenses (wants + needs) and 20% on investment and savings.
15/65/20 rule: This rule suggests 15% for saving, using 65% for essentials, and spending 20% on enjoyment from your salary, with saving as your top priority.
All budgeting rules suggest saving 15%-20% from your monthly salary. You can adjust this percentage based on your personal financial situation and goals.
Let’s look at how people can save money from salary based on their income level.
How Much Different Salary Bracket Individuals Can Save
We often assume that people with higher incomes can save more than those with lower incomes. However, there are also individuals who manage to save more despite earning less.
High-level salary group
It is obvious you can not save more if your earnings are high, but at the same time, you are paying multiple debts like a mortgage, business loans, and a personal loan. Saving has a direct connection with your nonessential expenses as well.
Example:
Suppose you are earning a $10,000 salary per month but spending $2,000 in debt payment and $2,500 on nonessential and abundant spending expenses. You are spending $4,500 on both, which makes up 45% of your take-home pay. In this case, you have less chance of saving more.
In the same salary level, you can save more if you have neutral spending, reduced nonessential expenses, and less or no debt.
As advised by experts and the 50/30/20 budgeting rule, you should save a minimum of 20% of your salary, i.e., $2,000 per month in this case. If you are caught in a cycle of repaying debts, aim to save at least 5% to 10% of your salary. Even small savings can grow into something big over time.
Mid-level salary
Mid-level professionals can earn less than those who are in higher salary brackets. However, if you are in this group and have neutral spending, you may have a good opportunity to save more.
Example: Imagine you are earning $8,000 each month from salary. Out of that, you are using $300 on dining out, $200 on shopping, $700 on memberships, subscriptions, and streaming services, and $300 on hobbies. So, you are using $1,500 on your wants expenses. That is 18.75% of your total monthly income. You are spending $900 less on nonessential items, following the 50/30/20 rule that you can use for savings or debt repayment.
Low-level salary
With a lower salary, saving more is tough due to the current high cost of living. But still you can save enough if you can manage to live on low cost.
Example: If you earn $6,000 and manage to keep your expenses and debt repayments at $4,800, you can save the remaining $1,200, which is 20% of your salary.
Matrix of Saving Per Month Based on Annual Salary
The table below shows how much you need to save each month based on different annual salaries and saving percentages.
| Monthly saving 5% | Monthly saving 10% | Monthly saving 15% | Monthly saving 20% | |
| Annual Salary $40,000 | $167 | $333 | $500 | $667 |
| Annual Salary $60,000 | $250 | $500 | $750 | $1,000 |
| Annual Salary $80,000 | $333 | $667 | $1,000 | $1,333 |
Different Factors to Consider for Saving From Salary
You can consider the below-given factors as well to decide how much you should save from your paycheck.
Age
In your 20s and 30s, you should start improving your saving habits. Initially, you should start saving 5% or 10% monthly from your income, and then gradually you can increase your savings. Consider saving 30%-35% monthly in your 40s and above to achieve retirement goals and other long-term goals.
Lifestyle
You can save more if you keep living costs low, but overspending on non-essentials or living in a high-cost area will reduce your savings. You need to adjust your savings accordingly.
Goals
If you are saving for long- or short-term goals, it is advisable to allocate more funds toward savings for a few months.
How to Determine Your Savings Rate From Salary
Start with small
If you’re new to saving, start small; aim to save just 5% of your income initially. Over time, gradually increase the amount each month until you reach a goal of saving 20% of your salary income. Starting small makes it easier to build good saving habits.
Adjust savings based on life changes
It will create an opportunity to save more if you get a salary hike or promotion in your job. Also, you can increase your savings if you get some spare time for freelancing.
Save based on your financial goals
You should save based on your long- and short-term financial goals. Suppose you are planning to buy a house or an apartment; then you should adjust your saving percentage from your income accordingly.
Plan to increase income
You can plan to increase your income for more saving. You can find part-time work or freelancing jobs using portals like Upwork to increase income and spend your salary on savings.
The Importance of Increasing Your Savings From Salary
You can save more than 20% from your salary if you have healthy income and room to save more.
Financial independence and early retirement: You can save 40-50% of your salary to build enough retirement funds at an early age.
Enhanced Flexibility: Financial independence can help you if you are planning for a career break or starting a new business.
Peace of Mind: Enough and robust saving will provide you better emotional well-being to focus on other aspects of your personal life.
Key Mistakes You Should Avoid
Waiting too long to start saving from salary: If you are planning to save from income, start it early. You will earn less compounded interest on your savings if you start late.
Not adjusting as per need: As your salary increases, it’s important to boost your savings accordingly. Failing to do so means missing out on valuable opportunities to build wealth.
Key Takeaways
How much of my salary should I save is a common question among salaried individuals. You can start saving from 5-10% of your salary and increase it once you get a hike in your income. It is important to save a minimum of 20% of your salary or total income as per all the budgeting rules. Start early to retire early should be your motto for early wealth building and retirement. You should save more for greater flexibility and peace of mind.
FAQs
Is 20k in savings good at 25?
Yes, $20,000 is a huge amount if you saved it in your age of 25. You should stick with your monthly saving habits to build a large corpus for the future.
Is saving 50% of your income good?
Saving 50% of your salary or income is an excellent saving rate if your financial situation allows you. As a general rule of thumb, you should save 20% from your income, but you are saving 30% more.
How much should I save on a 70k salary?
If your monthly salary is 70k, then you should save around $14,000 from salary as per the 20% saving rule.
Is 30 too late to save for retirement?
No, it is not late. But you should start early as much as possible for retirement saving.
If I save $300 a month for a year how much will I have
Your savings will be $3,600 in one year if you save $300 each month. Well, instead of just saving, you can invest that amount in high-yield savings accounts to earn interest on your savings as well.
If I save $800 a month how much will I have in a year
Monthly savings of $800 will become $9,600 in a full year. You can invest that amount in some good blue-chip stocks or mutual funds to earn a higher return on investment if you have an investment horizon of 8-10 years.
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