How Much of My Paycheck Should I Save Each Month?

Libby Kane

When it comes to making financial progress, we can probably all agree that saving for the future is a critical part of the equation. But how much are you supposed to be socking away exactly?

According to the 50/20/30 rule, you should consider dividing your monthly budget into three distinct categories of expenses: 50% should be reserved for essentials (think housing and food), 30% should be allocated for lifestyle choices (things like nights out and 121 channels of cable) … and at least 20% should go toward what we call “financial priorities,” which can include debt payments, retirement contributions and, of course, savings.

Since these percentages are divisions of your net pay—the after-tax income that you bring home—someone who makes, say, $35,000 a year should consider setting aside at least about $4,800 for financial priorities.

Think that sounds like kind of a lot? You aren’t alone.

That’s why we spoke to LearnVest Planning Services CFP® Tonya Oliver-Boston to find out if we really need to allocate 20% of our income toward financial priorities each year—and how much of that 20% should go into savings.

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For many people, putting at least 20% of their net pay toward financial priorities isn’t actually all that difficult. In fact, Oliver-Boston finds that one of the biggest problems clients generally face isn’t that they can’t manage to allocate the 20% for financial priorities—rather, it’s that outsized debt, like student loans and high credit card balances, that eats up most of that 20%, leaving little left over for savings. But as Oliver-Boston cautions: ”Even if you have debt in excess of 20% of your net income, you still need to find a way to save!”

Translation: Prioritizing one financial priority doesn’t mean that you can ignore the others—be it debt payments, adding to your emergency fund, contributing to your retirement, or other savings goals, like accruing enough money for a down payment on a house.

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So what’s the best way to divvy up that 20% across all of your financial priorities? ”It depends on the individual situation,” says Oliver-Boston. “But emergency savings and payments on high-interest debt tend to fight for first priority.” Retirement, she adds, is usually a strong third because it can be critical for your long-term financial health, followed by other savings goals, like that down payment we mentioned.

Need real-life examples? According to Oliver-Boston, if a client has a lot of high-interest debt but also has emergency savings, the client’s first priority would most likely be the debt because she has money in place to support her should she find herself in a situation in which her income could no longer cover her living expenses. If a client is cash-strapped, however, putting money into an emergency fund would probably take priority because the client doesn’t have the necessary cushion to cover her day-to-day expenses should an emergency arise.

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  • Jake Houser

    My wife and I are able to save 50% of our net income but it still doesn’t seem like a lot =(

  • hville84

    We save about 50% as well. Its true that it doesn’t seem like much right now. But if you’re sticking it into a mutual fund, the 4% rule dictates that you’ll be financially independent in 17 years.

  • Jay

    So if you’re supposed to save 20 percent of your net income after taxes, how do oh figure it if a certain percentage is being deducted for a 401k, which also counts toward savings? I’m having 10 percent withheld and am also thing to build up an emergency fund.

    • Baseball11626

      It’s not a 100% definite answer. I (like you and most people) have a mix of pre and post tax savings. I currently have 13% Pre-tax getting saved (403b), and then 14% of my post-tax going into “short-term” savings and another 3% post-tax into a Roth IRA. The numbers add up nicely to 30%, but its neither 30% of my pretax or post-tax income. It’s a weird hybrid. I’d suggest saving as much for your emergency fund as needed, and then looking into using a retirement calculator for the future.

  • chips n salsa

    Is this 20% of your monthly net income?

    • yeah

      well, isn’t it same whether you base 20% off of monthly income or yearly income to find out the amount of savings needed? it comes out to be same number.

      • Angel

        I think they meant net vs. gross, NOT monthly vs annual.

        Yes, your net income.

  • No Nonsense Landlord

    I am able to save all of my rental profits while I am still working. Maxing out your 401K and HSA go a long way to retirement savings. Add in the company match, and you have a decent amount every month coming in.

  • sunflower

    My husband only works and we save 22k a year into our savings with a family of six. Hes a nurse

    • Turd Gobbler

      wow! that’s some responsible spending there! glad to see it happening.

  • ej7897

    I’ve never really understood the concept of putting money into an emergency fund rather than putting everything into paying off high interest debt.
    What’s the use of the emergency fund if in reality a fair chunk of it will need to continue being used to pay off debt?
    When you have a debt, your savings aren’t really your own anyway.

  • ej7897

    For someone with a mortgage, should this 20% be over and above the minimum repayments?