How much should I save each month?

Saving money is the foundation of financial success. By setting aside cash from each paycheck that you promise to not spend, you’re setting yourself up to eliminate the stress of stretching yourself too thin – or even worse, racking up credit card debt.

But with so many competing financial priorities, it can be hard to know exactly how much to save each month.

There’s no one-size-fits-all answer. You’ll need to think about how much you earn, how much you spend on essentials such as housing and food, and why you’re saving in the first place.

How much should you save each month?

There are general tips that relate to savings, whether it’s retirement or emergency savings. However, how much you should actually be saving each month varies greatly depending on your own personal situation.

“While I know everyone loves rules of thumb and easy tips, there isn’t a percentage that works across the board for everyone,” says Laura Davis, CFP and founder of Financial Labs Inc.

A good starting point is the 50/30/20 rule. With this approach, you’ll allocate:

• 50 percent of your take-home pay to needs like housing, food, utilities and minimum debt payments.
• 30 percent to wants like dining out, entertainment, hobbies and shopping.
• 20 percent to savings.

If your monthly take-home pay is $4,000, you’d aim to save $800 per month under the 50/30/20 rule. Of course, this is just a guideline. If you have a higher income and lower expenses, you may be able to save much more than 20%. But if money is tight, anything you can save is a step in the right direction.

“Whether using the 50/30/20 roadmap, or some other gameplan for savings, the truth is that if it works to help an individual or household achieve financial goals, that’s a good thing,” says Mark Hamrick, Bankrate’s Washington bureau chief and senior economic analyst. “The income, financial resources and expenses vary from household to household. So, what might work for one might be less than optimal for another.”

What should you save for?

Think about saving money like running a race: The competition is going to feel a lot better if you have an idea of which direction to head for the finish line. Of course, saving isn’t ever really “finished” — you’ll be constantly working toward different financial goals over the course of your life.

Here are some examples of what you should save for:

• For major life events: Buying a new house, getting married, having a baby – these are all exciting milestones, but they all come with a hefty price tag. How much you’ll need to save varies, but the lesson is simple: The more you have set aside, the more you can enjoy these new chapters in life.
• For the fun stuff: While you might already have a budget for entertainment and dining out each month, it makes sense to work toward saving up the money for bigger expenses that fall into the “wants” category. Take a vacation, for example. If you want to go skiing next winter, start saving now. When the trip arrives and it’s paid for, you’ll have a much smoother time without the need to think about paying it off when you’re home.
• For college: If you have a young child right now, there’s plenty of uncertainty about what he or she might want to be when they grow up. However, if the plan includes college, there’s one undeniable truth: It’s going to be expensive. There are plenty of ways to start saving for college including a 529 plan and prepaid tuition plans.
• For retirement: The sooner you begin saving for retirement, the sooner you’ll be able to actually enjoy the post-work chapter of your life.  Plus, there are plenty of ways to save for retirement that come with tax benefits. How much you’ll need for retirement varies by your plans – you’ll need a lot more if you’re planning on having a second home and traveling the world – but don’t delay thinking about it.

Where to put your savings each month

In addition to thinking about how much you should be saving, you should also consider where you should be depositing the money. Different savings goals require different types of accounts. Here’s a rundown of three of the best places to stash your cash:

• High-yield savings account: Instead of accepting low – or no – interest from a standard savings account, a high-yield savings account does exactly what the name implies: Pays you a higher yield. The best high-yield savings accounts have low minimum deposit requirements (in some cases, it’s $0), and some are paying above 4.50% APY. You can access the money whenever you need it, so this is a great place for your emergency fund.
• Certificate of deposit (CD): CDs are a good fit for savings goals with a set deadline. For example, if you’re planning to start looking for a house 18 months from now, you might want to open a 1-year CD. You’ll get a guaranteed rate of return, and you’ll be able to calculate exactly how much you will have at maturity 12 months from today. Traditional CDs have early withdrawal penalties, which can actually work in your favor: Because you’ll have to forfeit some of your earnings, you’ll be less tempted to access the money.
• Individual Retirement Account: IRAs are a great option for your long-term retirement goals. These accounts can include a wide range of ways to grow your money – from high-risk stocks to low-risk CDs (CDs can struggle to keep up with inflation, so you’re going to need to get more aggressive for your retirement goals).

Ways to boost your savings

Once you have an idea of where things stand and what you can afford, you can begin to focus on how to save more each month:

• Pay yourself first. Treat your savings as a priority, not an afterthought. 
• Track your spending: Consider using a budgeting app or spreadsheet to track your spending and identify if there are any places you can cut back and put the difference into savings.
• Automate your savings: You can have retirement savings directly transferred from your paycheck, so you don’t ever have to see the money in your account. You can also set up automatic transfers from a checking account to a savings account to build your emergency fund.
• Save any windfalls. This could include tax refunds, bonuses or cash gifts. Alternatively, you can look for ways to increase your income, like finding a higher-paying job or starting a side gig. 
• Look for round-up tools: Some banks offer a feature that links your debit card spending to your savings account. For example, if you buy a coffee that costs $4.55, a round-up tool will automatically transfer 45 cents from your checking account to your savings account.
• Conduct regular audits of your money: It’s also wise to periodically reassess your lifestyle and your expenses to identify whether you need to recalibrate your finances. At the end of the year, for example, look at your savings accounts. How much have they grown? What can you do to make the growth even bigger over the next 12 months?

Building a sustainable savings habit

If saving 20 percent of your paycheck seems impossible right now, then save what you can. Just follow Davis’ simple one-word rule: “Start.”

It’s all about a habit. By setting aside a small amount – say $50 – each month, you’re training yourself to make saving part of your routine. And as you earn more money, you can increase that number.

“It’s OK to begin with something less than 20 percent, but to attempt to escalate the savings funding over time,” advises Hamrick. “I have yet to meet anyone who complained that they had saved too much money.”

Ready to start focusing on saving more money? Use Bankrate’s Simple Savings Calculator to figure out how long it will take you to reach your next financial goal.

–Bankrate editor Kristen Kuchar contributed to updating this article.