How Much of Your Paycheck Should You Save?

Saving money can be difficult, especially if you feel like you’re just barely making ends meet. But putting some money from each paycheck aside for future expenses can be an important part of a well-rounded financial plan. Many experts suggest putting 20% of your paycheck toward your total savings, which includes retirement, short-term savings, and […]

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Saving money can be difficult, especially if you feel like you’re just barely making ends meet. But putting some money from each paycheck aside for future expenses can be an important part of a well-rounded financial plan.

Many experts suggest putting 20% of your paycheck toward your total savings, which includes retirement, short-term savings, and any other savings goals. Exactly how much you should save each month, however, will depend on a number of factors, including your goals, current income and living expenses.

Here are some guidelines to help you figure how much of your paycheck to save.

What Percentage of My Paycheck Should I Save?

When it comes to what percentage of income to save for future expenses, financial advice can vary depending on where you look. Some experts suggest saving as little as 10% of each paycheck, while others might suggest 30% or more.

According to the 50/30/20 rule of budgeting, 50% of your take-home income should go to essentials, 30% to nonessentials, and 20% to saving for future goals (including debt repayment beyond the minimum).

The right amount for you to save from each paycheck will depend on your income, your fixed expenses, as well as your short- and long-term financial goals.

For example, if the cost of living is high in your area, you may need to spend more than half of your take-home pay on living expenses, making it hard to put 20% of each paycheck into savings.

On the other hand, If your goal is to buy a home in two years, you may need to put more than 20% percent of your paycheck into savings in order to have your down payment in that timeline. If you want to retire early, you may need to put more of your income towards retirement every month than the average worker.

Potential Savings Goals to Work Toward

While we all know that saving can be a good idea, it can be helpful to really think about what it is you are saving for. Having a few specific goals in mind can help you determine how much you need to save each month, and also help keep you motivated to maintain the discipline it takes to save.

Here are some common savings goals that can help you build financial wellness.

An Emergency Fund

Do you have a healthy reserve of cash you could tap to get through a difficult time or cover a large, unexpected expense?

If not, you may want to start saving up for an emergency fund that could help you handle a financial curveball, such as a job loss, medical emergency, or big ticket car or home repair.

Having this back-up fund in place can help ensure that you never have to rely on credit cards to make ends meet.

Ideally, an emergency fund will contain enough money to cover your living expenses for three to six months, but how much you’ll want to put aside will depend on your situation.

If you are married with no children, for example, you may only need to cover three months of expenses. If you have kids or you’re single, you may want to have an emergency fund that could cover at least six months of expenses.

It can help to keep the money in an account that earns more interest than a standard savings account, but allows you to easily access your money.

Some good options include: a high-yield savings account, money market account, or cash management account.

Paying Off High-Interest Debt

Another important thing you could consider doing with your savings is paying off any “bad” or high-interest debt you may have.

One debt payoff strategy you may want to consider is the debt snowball method. With this approach, you start by paying off the debt with the smallest balance and put all your extra payments towards that until it’s paid off (while continuing to pay the minimum on your other debts).

You then put extra payments toward the debt with the next highest balance, and so on. This can give you a sense of accomplishment which can help motivate you to continue your aggressive repayment.

Another approach is the debt avalanche method. This Involves putting all your extra payments towards the debt with the highest interest rate, while paying the minimum on the others.

When that debt is paid off, you then focus on the debt with the next-highest interest rate. Since you are concentrating on the debt with the highest interest rate, this strategy can end up being the most cost-effective.

Saving for Retirement

Exactly how much of your paycheck should go to retirement savings will depend on your age and when you want to retire.

If your company offers a 401(k) with matching contributions, it can make sense to put aside at least as much of your paycheck as your company will match (since this is essentially free money).

If you don’t have access to a 401(k) or want to contribute beyond that fund, you may want to open a Roth or Traditional IRA. Both types of IRAs have different tax benefits.

When you invest in a Roth IRA the money is taxed at the time of contribution but then in retirement, you can withdraw it tax free. Contributions made to a traditional IRA might not be taxed at the time they are made but are taxed when they are withdrawn in retirement.

When choosing how much of your paycheck to put into retirement savings, you may want to keep in mind that the IRS sets restrictions on how much you can contribute to your retirement funds each year.

Saving for Other Goals

After establishing plans for debt repayment, an emergency fund, and retirement savings, you may also want to consider working toward your other financial goals, like buying a house, saving for your kids’ future education, or going on a great vacation.

How much of your paycheck you should save for these goals will depend on what you want to accomplish and when you want to accomplish it.

When you’re saving for a big purchase, for example, you may want to start by determining how much money you’ll need and when you want to have the money.

You can then break that dollar amount down into the amount you need to save each year and month. This can help you determine how much of each paycheck you may want to put aside to help you achieve that goal.

For savings goals you want to accomplish in the next three to five years, you may want to consider putting the money in a safe account that earns higher-than-average interest (such as a high-yield savings account, cash management account, or a CD).

Longer-term savings goals, such as your children’s college education, can be invested more aggressively, since you’ll have more time to ride out the ups and downs of the securities markets. For college savings, you may want to consider opening a 529 savings plan.

The Takeaway

It can feel overwhelming to think about how much money you should be saving to ensure a bright financial future.

The good news, however, is that you don’t have to accomplish this overnight. You can tick off your savings goals one at a time over a number of years or decades.

To make saving more manageable, you may want to first consider what you want to save up for. Your savings goals might include building an emergency fund, paying off debts, funding your retirement, and making a large purchase like a downpayment on a home.

You can then start working towards these goals one day, or one paycheck, at a time. Depending on your income, expenses, and goals, this might mean putting 10% of each paycheck into savings, or it might mean putting 30% or more of your take-home into savings.

Ready to start saving a portion of every paycheck? You may want to consider opening up a SoFi Money® cash management account.

With SoFi Money’s “vaults” feature, you can separate your sayings from your spending, while earning competitive interest on all your money. You can also set up recurring deposits to help you reach your savings goals faster.

Not sure where to keep your savings? Consider a SoFi Money account.


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