HOW MUCH MONEY SHOULD WE SAVE EACH MONTH?
If financial freedom is a part of your goals, then committing some of your earnings to a savings account every month is vital. It’s impossible to build sustainable wealth without a healthy savings habit.
A 2017 report by CNBC revealed that 39% of Americans have no form of savings. The same survey showed that about 35% of all American adults have just a few hundred dollars (less than $1000) in their savings accounts and that only about 15% of all American adults have more than $10,000 in savings.
Now these statistics show that an effective saving habit goes beyond having a savings account. It also includes your ability to save a reasonable sum of money in your savings account. To achieve this, you’d have to review your earning and spending habits.
However, there’s often a challenge deciding on how much you should save. You can find yourself going back and forth on the topic, conversing (or maybe even arguing) with your partner over it. Worse still, you get stuck in a place of indecision.
The result of this dilemma, many times, is that you end up not saving a cent of your monthly earnings. While waiting to decide on how much to save, bills continue to show at your doorstep. Before you can tell what’s going on, you’ve spent the entire money.
So, if you’re still quizzing whether it’s important to save money, here’s a quick answer for you:
Yes, it is.
Developing an effective saving culture will help you build financial discipline and gain financial freedom. However, the crux of this post is how much you should save each month. First Mortgage Direct
Factors to consider before deciding how much to save every month
Before deciding on how much to save monthly, here are a few things you should consider:
1. Your Gross Income
As much as we may want to ignore it, your gross monthly income largely determines the amount of money you’d eventually save.
If your monthly bills constantly outweigh your monthly income, saving becomes difficult. Even if you eventually save some money, there’s a chance it won’t be more than a few cents or dollars. If you’re in this situation, here’s what you must pay attention to:
- Increasing your monthly income. If you can earn more from what you do, you would have increased your chances of building an effective savings habit.
2. Your Expenses
The money you spend monthly on bills affects the amount you have left to save. If you have to pay so many bills, then you may find it difficult to save. This is especially true if your monthly income is fixed, like the case of an employee who receives a specific sum of money each month as salary.
To save more money, regardless of monthly expenditure, consider doing the following:
- Eliminate unnecessary expenditure. If you can’t yet afford it, you don’t need it. This may require you to move to a house where you pay less on mortgage, or to unsubscribe from some of your favorite Internet and TV platforms. Making these difficult choices would cut down on the recurrent bills you pay each month. Having less bills to pay will make it easier for you to have more money to spare and to save, eventually.
- Start budgeting. If you’re entirely honest with yourself, you’ll see that one of the major reasons you’re unable to save as much money as you want is because you don’t have a laid-down structure on spending. You move along with the tides. Living a budget-free lifestyle is one way to keep blowing money without check and this would eventually lead to financial problems. Think long term.
3. Your Goals
“Why do I want to start saving money?” The honest answer you give will determine just how much you can save.
If you’re yet to see the importance of saving, you’ll be barely inspired and motivated to have a healthy savings budget. Without firm goals, you’ll be comfortable with saving little to nothing.
However, if your goal is to achieve financial freedom quickly, retire young and rich, and handle emergencies, you’d need to be strict with your savings habits. These reasons are valid enough to inspire you to save reasonable chunks of your earnings every month.
How much should I save each month?
Now that we’ve looked at the 3 main factors that determine how much you can save every month, let’s get to the main question. “How much should I save each month?”
The answer to this question depends on your purpose of saving. Here’s a quick rundown of suggested amounts, based on saving goals:
1. If you’re still young, with limited responsibilities, develop the habit of saving a reasonable chunk of your monthly earnings. At least, 25% of your monthly earnings is a good percentage to keep aside. If you can save more, that would be awesome.
2. If you have massive goals, like achieving financial independence quickly, save at least 20% of your monthly income.
3. If you’re just saving for the fun of it, 15% of your monthly income isn’t a bad idea. However, you may want to learn the significance of building a healthy savings habit. When you have done this, consider increasing the percentage.
Final thoughts on monthly savings
It’s important to learn that building a good savings habit doesn’t happen overnight. It requires a lot of discipline from you, especially when it isn’t convenient. Savings is a long-term game. You should approach it from this perspective.
Remember that savings and investments are completely different. As a result, you may want to start looking at a number of sure-fire investment options. Investments provide another way to grow your income and gain financial stability.
To learn more on finances, savings, and loans and investments, check out these common questions about HOW MUCH MONEY SHOULD WE SAVE EACH MONTH?