We all know that we should save money each month, but what is less certain is how much is enough.

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The savings rule of thumb is to set aside 20 percent of your gross income each month. 10 to 15 percent of your income should go toward long-term savings such as Retirement. And the remainder should go toward other financial goals such as building an emergency fund, a down payment for a home, funding higher education, etc.

But, as with much else in life, there is no-one-size-fits all. A savings rate of 20 percent may be too much for one person and too little for another. The ultimate goal is to save as much as you can. And in this article, we’ll explore the factors you should consider to establish a suitable savings rate for yourself.

How much to save each month if you have debt?

The type of debt you have will influence how much you should save each month.

If you have high-interest debt such as credit cards or payday loans, paying these off should take priority over saving. The reason being that the interest rate on such loans exceeds the interest or return you may earn on your savings.

Having a high-interest credit card which you pay off the balance each month does not pose any problems. However, concerns arise when the high-interest credit card balance builds up.

A caveat to paying off high-interest debts first is keeping a minimal emergency fund. Financial experts advise maintaining a fully-funded emergency savings of about six to twelve months of living expenses.

A minimal emergency fund could be a few thousand dollars to prevent you from going further into debt in case of a financial emergency.

What are your savings goals?

A significant factor in determining how much to save each month is your specific purpose for putting the money aside. Generally, financial goals will fall into one of three buckets:

Short-term financial goals: These will cover expenses that are coming up in less than a year. Such costs will tend to be of a smaller dollar value, and thus, you can achieve the goals relatively quickly.

These may include:

• Upcoming vacations
• Tax payments
• Building an emergency fund

Medium-term financial goals: These will cover expenses that will take place in the less than a decade time frame.

You may use the savings that fall under this category to cover expenses such as:

• Replacing home appliances
• Putting a down payment of a home
• Making major home repairs
• Buying a new car

Long-term financial goals: The savings under this bucket will cover expenses you will incur in the over-a-decade time frame.

Such expenses may include:

• Building your kids’ college fund
• Buying a second home
• Retirement (the ultimate long-term savings goal)

How to determine your savings rate

To determine how much to save each month:

1. list down all your financial goals in the three buckets as described above
2. For each of your goals, set a savings target amount and deadline
3. Divide each amount by the time frame to come up with a monthly amount

For example:

Carrying out this exercise for your specific goals could reveal that you may not be able to save enough every month to meet all your targets. And as such, you may need to make some adjustments.

What to do if you can’t meet your savings targets?

The good news is that you have some options when you discover that you cannot meet your savings goals. Your options will generally fall into one (or a combination) of the following categories:

• Modify or eliminate some of your savings goals: Chances are you have other financial obligations such as bills, mortgage, and student loan payments, etc. These expenses will limit how much you can comfortably put aside each month, and you’ll need a moment of honesty with yourself. Consider less expensive targets that still meet your needs or cut out those you can live without.

• Increase your savings time horizon: Consider a longer savings time frame to allow you the opportunity to reach your targets. For example, if you don’t want to compromise on having a big wedding to include all your loved ones, consider pushing out your date six months?

• Reduce your current spending: If you don’t keep a budget, the odds are that some of your money may be slipping through the cracks. A closer look at your spending habits may reveal expenses you can eliminate without sacrificing your desired lifestyle.

• Increase your income: Earning more could help you achieve your savings targets way faster than cutting back or being frugal. You can increase the amount you bring in each month through side-hustles, asking for a raise, improving your skills to increase your earnings potential, etc. When your income rises, aim to save most of the increase and continue living on the same amount as before.

How budgeting can help you save each month

One of the best steps you can take to increase your savings rate is to create a budget. A budget is critical to proper personal finance management as it helps you to:

• Add financial clarity to your life: Creating a budget will have you assess your income, spending habits, and financial obligations. The acknowledgment of your current financial position will inform your future goals and decisions.

• Live within your means: A budget will ensure that you do not spend more than you earn. Instead, it will help you identify unnecessary expenses such as under utilized subscriptions or streaming services, gym memberships, eating out excessively, etc.

• Prioritize saving: Most financial experts recommend the concept of paying yourself first when setting your budget. This concept means planning out your expenses to accommodate savings first. As such, whenever you receive a pay check, you can comfortably move a portion of it into savings immediately, knowing that whatever is left over will be sufficient to cover your expenses.

The 50-30-20 Rule

The 50-30-20 rule is a budgeting strategy that recommends allocating 50 percent of your income to necessities, 30 percent to discretionary spending, and 20 percent toward savings.

It is an excellent place to start because this rule gives you a general and simple guideline on where your money should go each month.

Also, as it is percentage-based, it means that you will automatically increase your savings rate as your income rises.

However, as it is just a framework, it may not suit your circumstances perfectly. For instance, at the moment, saving 20 percent of your income may not be feasible. On the other hand, spending 50 percent of your income on necessities may be excessive when your income increases.

The most important thing is to be saving regularly.

Conclusion

Saving is fundamental to your future financial security. However, the amount you should save each month depends entirely on you and your unique goals.

While the recommended minimum is a savings rate of 20 percent of monthly gross income, this is only a guideline. A savings rate of 1 percent of your monthly income is better than nothing at all.

Create a budget and savings strategy that suits your goals while not going without the things that you enjoy in life. Keep pushing to increase your savings rate, but also be patient with yourself.

As the saying goes, a journey of a thousand miles begins with a single step.

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