How Much of Your Income Should You Save?

Woman Putting Coin In Piggy Bank

Once you begin to earn a stable income, you should eventually be wondering, how much of your income should you save? Most financial experts recommend that ideally, 20 percent of your income should go to savings. Below, the team at Xpress Cash will break that number down to show you where to assign those savings and help you look at your short-term, long-term, and extremely long-term savings goals.

What Percentage of Income Should You Save?

As we noted above, it is ideal to put 20 percent of your income toward savings. Of that 20 percent, the following breakdown is recommended for most individuals:

  • 12 percent to 15 percent should go toward your eventual retirement
  • Five percent to eight percent should be set aside for emergencies, other long-term savings goals, and taking care of debt

Setting Up Savings Goals

While you could simply open a savings account with your bank and pull a set amount from each month’s income to be deposited in that account, many individuals will find that it is more helpful to look at their savings in terms of short-term, long-term, and extremely long-term financial goals. Take a look:

  • Short-Term Savings Goals – Your short-term savings goals are for any anticipated expenses coming up within the next year. This could be a vacation you have planned, a big wedding or birthday celebration, gifts for the holidays, and other such events. You could also plan to put six months’ worth of your monthly expenses into an emergency fund.
  • Long-Term Savings Goals – Long-term savings goals would be anything that you’re approaching in less than 10 years. Some examples of these long-term goals could be home appliances that will need to be replaced, other home improvements you would like to make, buying your first house, or getting a new car.
  • Extremely Long-Term Savings Goals – Any goals you have that you won’t be facing for over 10 years would fall under extremely long-term savings goals. This could include starting up a college fund for your children, getting a vacation home, and most commonly, saving up for your eventual retirement.

After creating your various savings goals, list each goal out one-by-one, then come up with an ideal savings target and a deadline for each goal. Using the time you have until each deadline comes up as a time frame, divide that time frame by the amount of money you need for each goal.

For example, let’s say you’re planning for a vacation for your family of four that you’ll be taking in eight months. If you wanted to save $1,000 per person in an eight-month time frame, you would divide $4,000 by 8. This tells you that you’ll need to save $500 per month for the next eight months in order to afford up to $1,000 per family member on your vacation.

Get More Savings Advice From the Team at Xpress Cash

The answer to what percentage of income should you save can vary from person-to-person, depending on where you’re at in your life. If you’d like some additional savings advice as it pertains to your unique situation, the team at Xpress Cash would be happy to help! To get started today, we invite you to contact us or stop by to see us at one of our many Michigan locations.