How much should you save each month to reach your financial goals
You've probably heard that the best way to reach your financial goals is by putting away a certain amount of money each month. But how much should you save? And what should that money be used for? We'll cover all of that in this guide.
Read on to find out what goals are reasonable for different ages and incomes, plus tips for saving more money each month and setting up an automatic savings plan so you don't have to think about it.
The first thing to do is figure out how much you’ll need in your emergency fund. We recommend having at least three months of living expenses saved up, but it is also important to consider any other debts or obligations you may have. For example, if your car insurance is due or your mortgage payment is coming up, that represents an unexpected expense as well.
If you don’t already have an emergency fund set up and ready to go, the good news is that it doesn't take long to build one up! Saving money for emergencies can be as simple as using a high-yield savings account like Ally Bank's Online Savings Account.
The interest rate on this account starts at 1.50% APY* and there are no monthly service fees or minimum balance requirements required to earn interest on your balance.
This means that every dollar you put into this savings account earns more than the typical 0.01% APY offered by most banks for regular savings accounts (and most credit unions). If you put just $50 each month into this account over a span of five years ($2 per week), here's what will happen.
After 5 years: You'll have $7,239 and change in total earnings meaning $1 every day could result in almost $10 extra per year! And since we're talking about emergencies here...what better time than now?
Down payment for a house
How much you should save for a down payment depends on what type of home you're looking to purchase. A common rule-of-thumb is to save 20% of the cost of your new home, but this can vary depending on where you live and how much you earn.
For example, if you're looking to buy an average house in California, the required down payment will likely be higher than 20%. On the other hand, if you're buying a more expensive home in a rural area with an average annual salary under $50k, then maybe saving more than 20% isn't necessary.
It's also worth noting that saving for a down payment before searching for houses (or even before buying) can be beneficial because it gives buyers more time to get preapproved by lenders and get their financial house in order—making it easier for them to find properties they truly want and afford.
College fund for kids
Saving for college is a great goal. Here’s how much you need to save each month:
- $300 per month if you want to start saving in your child’s first year of life.
- $400 per month if you want to start saving in your child's second year of life.
- $500 per month if you want to start saving in your child's third year of life.
The longer you save, the more money will be added up over time and the less expensive college will be when they get there!
Retirement fund for your golden years
Your retirement fund is the money you'll need in your golden years to cover expenses such as rent or mortgage payments, food and medical care. So, it's important to start saving early so that you can have enough when the time comes.
If you begin saving at 25 and contribute $100 each month until reaching 70, chances are good that by then your nest egg would be worth more than $1 million. By putting away $2,000 each month from age 25 to 65, a person can earn over $3 million by age 70. And if this savings rate is maintained for 40 years? The amount grows even more: almost $6 million!
Most people don't realize how important it is to set aside some cash every month (ideally an amount equal to 10 percent of your gross income). But if everyone saved even just 5 percent of their disposable earnings every year—that's less than one Starbucks latte per week—we'd all be better off financially later in life.
Everyone needs to save.
In this article, we’ll look at how much you should be saving each month to reach your various goals.
Everyone needs to save whether it's for a rainy day, retirement or an emergency fund so let's get started!
We know that saving money can be difficult. With all the bills you have to pay each month, it can feel like there’s never enough left over to put aside for the future. But in reality, everyone needs to save even if it’s just a little bit at first.
If you start with just $200 per month, by the time you reach retirement age (around 65), it will have grown into more than $1 million!
And if times get tough and money gets tight, remember that there are options available: consider cutting back on expenses like eating out or shopping so that more money goes towards your financial goals instead of spending on things we don't really need right now anyway (like those designer jeans).
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