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Week 3: What percentage of my income should I save?

One of the most common questions in personal finance is, “How much should I save each month?” While there’s no one-size-fits-all answer, a strong rule of thumb is to aim for at least 10-20% of your income. This guideline helps ensure you’re building a safety net, preparing for future goals, and investing for retirement.

Here’s a closer look at why 10-20% is recommended—and how to refine it based on your unique situation:

10% is a starting point. If you’re just beginning, saving 10% of your income is a great starting point. This can help you build an emergency fund (typically three to six months of living expenses) and establish the habit of paying yourself first.

15-20% is needed for many in order to meet future goals. Once you have a handle on basic expenses and an emergency fund, consider increasing your savings rate to 15-20%. This extra cushion allows you to invest more for retirement, save for a down payment on a home, or set aside funds for major life events (like starting a business or raising a family).

Ratchet up your savings rate as income and expenses allow. Life circumstances are different for everyone. If you have high debt payments, you might save a smaller percentage initially while working to pay down those balances. Conversely, if you have fewer obligations or a higher income, you could aim for 25% or more to accelerate wealth-building.

No matter how small, automate your savings. To ensure consistency, treat savings as a “bill” you pay yourself. Set up automatic transfers from your checking to your savings or investment accounts. That way, you’re not tempted to skip a month. Start with $50, weekly or monthly and begin building!

Below is a clear example of a sample client who needs to save $12,000 per year in their Roth IRAs (a married couple).

• This savings rate would mean an 85% instead of 73% probability of plan success = not running out of money.

• Future dollars for spending in retirement of over $2,000,000 vs. $1.2 million(ish) if they don’t do this saving

• These are projections based on unknown future rates of return, inflation, and other factors. While not perfect, it is far more personalized than assuming x% of your income should be saved.

• Factors like Social Security claiming, pension options, stock option compensation, longevity, long term care expenses, and more can be accounted for with comprehensive planning over rules of thumb.