How Much Should You Save From Each Paycheck?

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It is best to start saving in your 20s, but do not despair. The next best options are to start saving in your 30s, your 40s, or wherever you find yourself in life. The sooner you set financial goals, the more options you’ll have.

“The old rule of thumb is that if you save 10% of your income each paycheck from day one, you will be very well off in retirement,” says Jason M. Duross, a certified financial planner at Prudential Advisors. “I like this rule of thumb but would add that an additional 10% should be saved, if your budget allows for non-retirement needs (vehicles, homes, college education for children, weddings, and emergencies).”

Another approach is to start saving at 5% and then adding 1% of savings each year. That will get you to 15% by age 35, which keeps you close to Duross’s schedule. But if you are able to start at 10% or even 20%, that’s what you will become accustomed to. Once you are accustomed to living off 80%, 85% or 90% of your paycheck, it won’t feel like as much of a burden.

“If you pay yourself first, then you can align your lifestyle with the remaining income and live within your means moving forward,” Duross said. “Learning good habits early is so important.”

One popular way to save is the 50/30/20 rule, which suggests breaking down your paycheck based on percentages. You would spend 50% on needs (housing, food, transportation); 30% on wants (dining out, concerts, movies) and 20% on savings.

Another plan is to set goals based on your age. For example, save the equivalent of your annual salary by age 35, two times your salary by age 40, and so on. If you’re earning $50,000 at age 25, saving $5,000, or 10% of your salary, each year will get you to $50,000 by age 35. Add any interest accrued and you’re ahead of the game.

Variables such as student loans, other debts, housing costs in different parts of the country, all can affect your ability to set and maintain goals.

What Are Your Saving Goals?

Your needs and your goals change during different stages of your life. A young, single college graduate has different goals from a 30-something with a spouse and children, who in turn has different goals from a 55-year-old looking at approaching retirement with a certain urgency.

Setting goals for your savings will help you achieve important financial landmarks like an emergency fund, a down payment for a home or investments for retirement. Consistency pays off. Money you save for an emergency fund can be used if an unexpected financial crisis arises. Having money for a down payment on a home can help you achieve short-term goals. Equity in that home can help you reach long-term goals.

Emergency Fund

An emergency fund is a very sensible goal to begin your savings program. Experts recommend a total that should cover 3-6 months of standard living expenses. If you encounter an emergency, that money will be a lifesaver. If you don’t, that money can become part of your larger, longer-term savings plan.

The trick is to make sure you maintain access to that emergency fund amount even as you place other funds in more secure, long-term savings methods.

Duross suggests the “buckets approach” to saving, which, he says, “assigns a level of risk for each goal.” An emergency fund should be in a “no-risk” bucket using money market accounts, certificates of deposit or high-yield savings accounts.

Short-Term Savings Goals

With an emergency fund in hand, you can place some emphasis on goals within a five-year horizon. This could mean saving for a house, a wedding, the birth of a child, or using your income to repay high-interest debt before it gets out of control.

For this “bucket,” Duross suggests an investment account designed for easy access but with a moderate risk for improved growth. Examples: bonds and large-cap stocks.

Long-Term Savings Goals

This “bucket” can be filled to help save for your child’s college or with saving for retirement. Since there is time to replenish this bucket over time, more risky options like an IRA or 401k should be considered.

Speak to a financial advisor to determine your individual strategy and what your pie chart of investments should look like.

Guidelines for How Much To Save

The flippant answer for how much you should save is this: AS MUCH AS YOU CAN!!!

But you aren’t looking for flippant answers. There are useful guidelines for saving, but it’s important to remember there is no one-size-fits-all advice.

The 50/30/20 budget is easier to follow for someone making $100,000 a year than for someone making $50,000. It is still a good place to start when creating a budget. If you apply 50% of your paycheck to needs, and limit 30% of your pay to wants, that leaves 20% for savings.

That would be tough for someone making $70,000 and living in metropolitan areas like New York or San Francisco than for someone earning $100,000 and living in a suburb. And it would be tougher for a young parent than for a single, childless person.

Real life changes the specifics, but not the principle. Find a savings number that is comfortable and consistent. It is better to save 10% or 15% than to give up because saving 20% isn’t practical. It’s OK to do your best even if it’s not the ideal best.

Where To Save Your Money

Where you go to achieve your goals could be a choice of doing it yourself; asking advice from a trusted (and hopefully successful) family member or friend; or paying for advice from a certified financial planner.

Ultimately, your choices about saving should be based on factors such as risk, growth, and the amount of time you’re planning for.

Higher risk can mean higher growth, but it can also mean low growth or even losses. Follow the daily stock market reports to see this in action. Your planning should start with your goals — an emergency fund, short-term savings, or long-term investment – and the products that will help you achieve those goals.

High-Interest Savings Account

Your regular bank likely offers a minimal interest rate on your savings account. There is an emerging market of online banks that offer significantly higher interest. These can help with shorter-term goals such as building an emergency fund. One key benefit is that money in these accounts is easily accessible.

It is important to read the fine print and make sure you know about any minimum amounts or account fees that might be involved.

Certificate of Deposit (CD)

A CD is a secure, short-term way to store money away for a defined goal.

The upside is that you can get a guaranteed rate of return for your money after a specific period of time. The terms for CDs can range from a few months to several years, with longer terms generally offering higher interest rates in return.

The drawback to a CD, among other types of account, is that you cannot access your money whenever you need it. There is usually a penalty for early withdrawal with a CD, for example.


When you start thinking about long-term planning, investments are the smart play. For perspective, look at the Dow Jones Industrial Average every day for a week. It will make you nervous about relying on the stock market … until you look at returns over the long term and see the advantages.

When you’re saving and investing for life, the risk/reward ratio begins to tilt toward taking some chances. The thinking is that over an extended time, you will be successful. The stock market averages a 10.5% gain per year over the last 50 years.

Retirement Accounts

There are a variety of these accounts, primarily 401(k), individual retirement accounts and Roth IRAs. They involve investments, but instead of you personally making investment choices and analyzing the market, expert investors make those choices for you.

IRAs and (401)k accounts emerged as an alternative to old-fashioned pension plans. They eventually replaced pensions for the most part.

Some companies that provide 401k accounts also offer a matching amount, usually between 3% and 6%.

“I would recommend always taking advantage of the full employer match,” Duross said. “The faster you can grow your retirement account in your early years, the future result is amazing because you had a larger amount compounding over the entirety of your working career/life.”

What to Do If You Can’t Save Enough From Your Paycheck

If you find that saving 15% or 20% from your weekly paycheck is impractical, there are options for improving your chances.

There’s no way to know if creating a budget will help until you try it. There are some very practical ways to go about it, and it can help in multiple ways, from saving money to reducing your debt (which, in turn, helps save money).

Using the 50/30/20 method is more doable if you can reduce the amount of money that comes out every month under the heading “Needs.” Reducing expenses is a practical alternative to increasing income.

That doesn’t mean that increasing income is a bad thing. In our post-pandemic world, working from home is a reality for millions of people. Whether you do some extra work that way, or pick up side hustle, the extra money can come in handy.

Start Working Towards Your Saving Goals Today

Many Americans, maybe most of us, start our financial lives without a clue and with no idea how much we’re going to wish we had one. We’re quicker to get a credit card than start saving money. We hit rough patches – a health issue, a job loss, inflation – without a nest egg to fall back on and keep us going.

So the best time to start working toward your saving goals is today, and the second-best time is tomorrow morning. It can be complicated, especially with demands from family or rising prices, but that’s not a reason to avoid it. In fact, it’s the reason to start as soon as possible.

If debt is causing you to delay, then nonprofit credit counseling can help you get on better financial footing. These counselors do not cost you anything and are legally obligated to look out for your best interests.

About The Author

Phil Sheridan

Phil Sheridan writes about managing personal debt for InCharge. He spent over 30 years learning about labor negotiations, salary caps, stadium negotiations and a lot of other finance-related matters as a reporter and columnist for the Philadelphia Inquirer and ESPN. Phil will use those experiences to make readers more comfortable about their own financial situation.


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