How much of your paycheck should you save?

Whether it’s a minor emergency like a flat tire or a trip to care for a sick family member, life will inevitably throw you some financial obstacles.

Building an emergency fund and setting aside money for the future is critical, but how much of your paycheck should you save? In general, experts recommend setting aside 20 percent of your income. If that percentage isn’t possible, there are some strategies you can use to earn extra money to build an adequate safety net.

Living paycheck to paycheck is normal. In 2024 Civics Survey1 in 4 adults say they don’t have enough money to save after paying their bills.

If that fits your current situation, you know how stressful it can be. When they’re infrequent, small problems like prescription drug costs or routine car maintenance can become serious problems. Without a cushion in your budget or savings, you may need to use debt to cover the cost.

Saving for a rainy day and your future is key to breaking that cycle. It also gives you great peace of mind. It can be incredibly comforting to go to bed knowing you can pay for new tires or cover pet vet fees, and it’s amazing how having a financial cushion can improve your sense of security.

Read more: How to make the most of the 3-pay month

Recommendations vary, but in general, experts say a good goal is to put 20% of your income into savings. That guideline doesn’t mean you have to keep the entire amount in a savings account; You can divide that percentage according to your various savings goals. Below are three main areas to plan for when creating a savings budget.

An emergency fund is an important part of financial security. If your washing machine breaks down, your dog needs surgery, or your car needs extensive repairs, it will protect you.

Experts recommend setting aside enough money to cover three to six months of expenses in an emergency fund. For example, if you typically spend $4,000 a month on rent, food, insurance, and other essentials, you should plan to save $12,000 to $24,000 in an emergency fund.

If this amount doesn’t seem realistic, start small. Setting aside $1,000 or even $100 can be an important step toward improving your finances, and having that money can give you some relief in the event of an emergency.

Read more: How to save money in 2024: 44 tips to grow your wealth

Many people are not saving enough for retirement. Retirement experts say you need to save 10% to 15% of your income, but these tips are based on the assumption that you start saving in your 20s. If you start saving later, you may need to save more.

But don’t panic. This amount includes employer contributions. If your employer matches your pension contributions, you can count those contributions towards the pension scheme.

For example, let’s say you earn $50,000 a year. So to meet the 10% recommendation, you need to save $5,000 for retirement each year. Your employer will match 100% of your contributions (up to 5% of your salary), so you can qualify for up to $2,500 a year in matching contributions. With your employer’s help, you only need to save $2,500 of your own money to meet the 10% goal.

Of course, any extra money you can save will help you in the long run. However, when money is tight, focus on qualifying for a full employer match and saving what you can.

The earlier you start, the better off you will be. Let’s say you started saving at the age of 25 and you plan to retire at the age of 65. If you contribute $50 a month and your employer contributes the same amount, it will allow you to save $100 a month for retirement. Assuming an average annual return of 8%, you will have approximately $350,000 in your retirement fund by age 65.

Increase your contributions by $200 a month and you’ll have nearly $700,000. And saving $300 a month will make you a millionaire in retirement.

*Examples assume that the individual begins saving at age 25 and retires at age 65, and that the stock market provides an average annual return of 8%.

In addition to your emergency fund and retirement nest egg, you may have other goals you want to accomplish, such as buying a new car, owning a home, or traveling.

Of course, at today’s prices, those goals may feel out of reach. Today, for example, the average home price is over $500,000, and the average price of a new car is over $48,000.

Setting aside a small amount each month can add up over time, helping you build a down payment or cover the costs of your dream vacation.

If you live in an area with a high cost of living or have other large expenses, it may not be possible to allocate 20% of your income. However, it’s important to start somewhere, no matter how small. Setting aside $5 or $10 a month can make a difference over time.

Consider the following tips to save extra money on a tight budget:

Placing your savings in a HYSA will help you maximize every dollar you save. You’ll earn a higher interest rate on your account than you would with a traditional savings account, helping it grow faster. In fact, many high-yield savings accounts pay 5% APR or more.

Check out our picks for the best high-yield savings accounts available today>>

There are only so many ways to cut your expenses and cut your budget. When money is tight, look for ways to increase your income. example –

• Rent unused space. You can rent out an extra room, a parking space, or an empty closet to neighbors and local residents for storage. You can use it as a platform. Neighbor. To list your position.

• Sell ​​unused gift cards; About half of Americans have unused gift cards. If you have a store or restaurant gift card gathering dust, sell it on resale platforms and turn it into cash. GiftCash Or Grow up.

• Picking up gig work; If you have some free time, you can earn money by doing on-demand gigs on platforms like these. TaskRabbit.

Some financial institutions have savings or investment accounts with summation tools. When you make a purchase or pay a bill, the institution rounds the purchase amount to the next whole dollar, depositing the difference into your savings or investment account.

For example, if you buy a coffee for $3.50, the platform will round the purchase amount to $4.00, putting the extra 50 cents in your bank account. Over time, your profit margin can add up.

You can use summary features through Acorns, Bank of America, SoFi, and others.

Read more: 5 money saving apps to help you grow your wealth

As a general rule of thumb, you should save 20% of every paycheck. So, if your salary is $1,000, you should set aside $200 for savings. But, if you can’t spend that much right now, that’s okay—some savings are better than none. Start small – even if it’s just 5% or 10% – and work your way up to saving more over time.

For most people, saving 20% ​​of their net income is considered “enough”. However, the 20% rule is only a guideline; For some, 20% may be too much, but for others, it may not be enough. If you’re not sure how much savings makes sense for you, sit down and create a detailed budget that outlines your income, financial obligations, and savings goals. Then you can decide how much savings is right for you.

Regardless of how often you get paid, you should plan to save 20% of each paycheck.