Saving for the future should be your top priority. It is one of the most basic financial advices that you may get from everyone around you. And when you save something every month, you are making your future more secured. You are the only one who gets lost wondering about “how much money should I save every month?”. Undoubtedly, saving money to secure your family’s future is an integral part of your long-term financial well-being. For some of us, it may become a challenge to make a berth for savings every month as our expenses are more than what we earn. But saving money helps you in managing your money in a way that you will not be cheating your future self.
How much should you aim to save each month?
There is a wide range of factors to consider before finalizing the saving and investment goal. These factors may be the time of retirement, risk tolerance levels of the person concerned, financial goals, liabilities, and commitments, etc. The amount of money that one needs to save is generally expressed as a percentage of income or, to be more precise, the final take-home income.
As already said, there is no fixed number as to what amount should be saved, but for someone in the early stages of their career (say the 20s), the suitable amount to save would be 20% of the income as there may be many expenses like loan repayment. While for someone in their 50s, they should save above 50% of the income.
The amount to be saved monthly depends on the savings goals, i.e., the ideal savings rate depends on the specific long-term reasons for saving. There are three timelines to consider:
- Less than a year- For all the 1-year goals, short-term savings can be used.
- Less than a decade- For all the goals that need a good amount of money like, covering a major insurance deductible, staying afloat between jobs, replacing any expensive equipment or device, etc.
- Lifetime- The one major lifetime goal is retirement or to provide life cover or death benefits to the beneficiary.
Personal goals, as well as financial goals, tend to change with age, but it's never too young or too old to save money. Now, there are many situations where one might need money; some of them have been broadly categorized as:
Your savings target will depend on your age, monthly income and outgoings, liabilities and debts, life insurance premium payments etc. Consider such factors to build your financial profile and then set a target by keeping in mind your monthly budget.
How to save money every month?
There are a lot of ways to save money. But remember, there is no “one size fits all” formula when it comes to personal finance. You may try each of the approaches for a month to compare for yourself and then you can pick the best one out of it.
1. 50/30/20 Rule
You must have heard about the 50/30/20 rule. This rule states that 50% of your monthly income may be reserved for spending on essentials like food, rent, medical bills, education fees, etc. While 30% can be put aside for discretionary spending and 20% of your income should go towards a saving pot. However, it is not always easy for everyone to set aside 20% of what they earn for savings.
2. Envelope system
It is an excellent way to keep a track of your money. While setting up the monthly budget, you must have allotted a specific amount to each of the category. Write down those categories on different envelopes. Put the assigned amount under each category inside the envelope. If you go overboard, you will get to know that you have spent more than what you had planned for spending. And at the end of the month, whatever amount is tucked away in all the envelopes, you can put it in your savings account.
3. Saving Plans
You can use saving and investment plans to put your money. A saving plan like Guaranteed Income4Life offers you a regular and steady source of income while also protecting you with a life cover. Such plans are beneficial to meet long-term financial goals as the corpus can help you attain milestones that you had set in life, for example, your child’s higher education, their marriage, etc.
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5 Reasons you should save money
First of all, it is essential to know why one should save money. If any individual is looking to invest in long-term saving plans, then it becomes crucial to know why to save money. Here are some reasons why saving money can be beneficial:
1. Financial security
It is evident that saving provides financial security, and having money makes life easier. Any money piled up safely or invested somewhere with maximum returns, and minimum risk factors can help build a hassle-free life. Most people save money for their retirement plans and to stay financially secure during those times.
2. Can take calculated risks
There are many ways in which money can be saved for the future; one of the most common is to invest it somewhere. Investing money means making more money out of money. This kind of wealth creation comes with some risks.
3. Financial freedom
Saving can provide freedom. One need not be financially dependent on someone else when he/she has money saved up. It is also critical to have some cash set aside for emergencies and unexpected expenses. Saving gives flexibility with the choice of life; financial goals can be achieved easily. And this flexibility may be attained by setting a specific amount aside each month.
4. Provides for emergencies
Emergencies are unpredictable, and thus having an emergency fund can save the day. An emergency fund is cash set aside in a savings account only for unexpected situations such as accidents, an unexpected illness, etc. To keep emergency savings accessible and available, consider having an online savings account.
5. A comfortable retirement
One should aim to save 15% of the salary for retirement or start with a percentage that is under budget and manageable and then increase that percentage by 1% each year to ultimately reach an adequate percentage. The ideal way to save for retirement is by automating monthly transfers from the checking account directly to the savings account.
Saving money for the future is considered one of the important aspects of life. Money can be preserved either in a savings account or investing in some monthly investment plan. One must keep the proper understanding of the different types of investment options available in the market. Saving is a wealth collection method, while investment is a wealth creation method, and both can be worked simultaneously to secure a future.
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