How Much Do I Need to Save per Month?

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I was born in 1988 and don’t have a stable financial future.

My grandparents saved and were frugal but had pension funds to rely on (which are now just a thing of the past). My parents were responsible and saved in their 401(k)s, but let’s be honest: No entire generation has actually retired on a 401(k), so in essence they are guinea pigs. But in exchange for being test subjects, my parents are at least guaranteed Social Security!

So what about me?

  • No pension fund
  • Unlikely Social Security
  • Freelance writer (and therefore no 401(k))

I’ve decided the future will shake itself out, but what I can do today to help prepare myself is save. Cash provides a cushion and gives us options. Those are both things I like.

But exactly how much is “enough”? What is “good”?

The answer is it depends how much you bring in. Some experts, with whom I don’t agree, will say a flat 10% savings rate works for everyone. But 10% of $25,000 is very different from 10% of $100,000! Plus, how much to save depends on future goals, debt, and general money management skills.

Let’s talk about the best way to save and how much to save depending on your income level.

Imagine Retirement

This is hard for me to do, and it’s probably the same for you. But having a goal to work toward will make the actual saving much easier. Sketch out what you want your retirement to look like and think about the amount you need to live on.

So How Much Should I Save Each Month?

Once you have a number, although it will probably change, you at least have something you’re working toward. Some of you out there, depending on where you live, might need only a couple thousand a month. Others will need much more. How much you should be saving per month will largely come down to what you want your retirement to look like.

Obviously, I can’t tell you exactly, because of the reasons mentioned above. But here’s an idea:

Annual Income How Much to Save Each Month
$45,000
$600
$70,000
$1,400
$100,000
$2,541

Where Should I Put My Savings?

When I started looking into this, I quickly realized how fast money devalues. A gallon of milk used to cost a quarter. Now it’s nearly $5. It’s for this reason you don’t want to save money and let it sit in cash. A thousand bucks today might buy you a gallon of milk in the future; who knows?

Currently, inflation is at 2.5%, so the goal for now is to keep your savings somewhere it can earn more than a 2.5% return. Have you seen your savings account interest rate lately? Probably 0.00000001%.

And that is why investing is so important. The returns you see in the stock market will beat the return you see from your savings account every time. The stock market is your only chance to beat inflation.

Let’s use two of my friends as examples:

Sarah. Sarah is 28 and has zero in savings. She is going to start saving $600 per month starting today and plans to retire 34 years from now. Sarah is suspicious and not sure what the stock market is, so she tucks this money away in her savings account.

Sarah: 34 years * 12 months = 408 months. 408 months * $600 = $244,800.

Ashley. Ashley is also 28 and has zero in savings (yay, student loans!). However, she is going to start saving $600 per month starting today and is putting it in a low-cost index fund that mirrors stock market performance. Ashley plans to retire 34 years from now. Over those 34 years, the stock market returns on average 7% a year.

Ashley: 34 years * 12 months = 408 months. 408 months * $600 invested into the S&P Index which was returning 7% on average a year = $1 million.

This is the beauty of investing and understanding average returns in the stock market and how that can really boost your savings over the long run.

If you want to see where your money will be in the future, whether you invest it or save it, you can do so with PocketSmith. PocketSmith's scenario planning tool allows you to plan different futures and add positive or negative interest rates to your savings scenarios so you can plan for your future with ease.

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Rating: 7/10
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How to Get Started Investing

This article is about how much to save per month, but since you now realize that where you put that savings makes a big difference, let’s quickly review how to get started investing:

  1. Through your employer (401(k) or 403(b)).
  2. No employer? Do it like me and invest in a Roth IRA.
  3. Use a microsavings service. Saving doesn't have to break the bank and can be automatic every time you purchase something. We recommend Acorns for that.
  4. Use a robo advisor. These things make investing pretty easy. We recommend Wealthfront, since it has the best feature.

Saving is important. If you can’t magic up $1,400 a month to tuck away into your savings, it doesn’t mean you should throw up your hands. Any amount of savings is better than no savings. If you need to start at $100 per month, that’s 100% OK. Do the best you can with what you’ve got until you’re in a position to do more.

Kara Perez

Kara Perez is a freelance personal finance writer. She is the founder of bravelygo.co, a company that connects women and money. Kara lives in Austin, TX and believes in the power of budgeting and peanut butter.

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