How much income you should save each month

Everybody knows the importance of saving. But how much you should save can feel like an open question. How does anybody start building their own savings plan?

There’s no universal rule. No rock-solid number applies to everyone.

Incomes vary a lot. Some folks are dealing with heavy debt. Some people have dependents they need to plan for. Others are working for their own independence.

But there is a road-tested formula - a straight-forward way to ensure saving is a priority, but still in balance with the rest of your life. 

Start with a monthly budget

Start with well-balanced budgeting. Make a plan that reflects your own financial situation - a plan that accounts for your real-life living expenses and includes your own financial goals. 

Pulling a number out of thin air doesn't reflect your annual income - or your ambition. Following your neighbor's financial advice or using a coworker's savings target is no way to measure what works for you.

Before you can save in a way that works for you, look at the big picture. Make a simple monthly budget, using your monthly income after taxes. 

Follow the 50/20/30 budget

The 50/20/30 formula is a common rule of thumb and a straightforward way to budget every month. Here’s the breakdown of the 50/20/30 formula. 

• 50% on needs

• 20% on savings

• 30% on wants 

The 50/20/30 formula prioritizes your essential needs, and it treats saving just like your other monthly payments. 

Tweak the percentages if you need to - but be mindful of the balance. 

Rent, utilities, health care, car payments and public transportation costs are all essential needs. Credit card payments belong in the "needs" column too. You need to pay them or face difficult consequences. 

Or don't fuss with "needs" or "wants" yet. Just try the math for savings. Figure 20% of your monthly income and multiply by 12. That's how much you can reasonably save over the 12 months in a year. 

Look at that! You just made your first savings plan!

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                                                         Use the rule of budgeting on your income.

Set up a saving account

Now see if your bank offers a high-yield savings account and set up automatic transfers from your checking account. 

Your monthly savings will grow more in a savings account with a competitive interest rate. And the sooner you start saving, the more interest you'll earn. 

Start an emergency fund

With your 20% savings plan in place, your first priority should be an emergency fund - that’s a personal safety net you can use for unexpected expenses, like major medical bills or auto repairs or missed paychecks in case of a job loss. 

Some people call it a "rainy day fund," but whatever you call it, make it your first savings goal. 

Most banks allow you to set up funds within your savings account. Check your bank account and see what they can do.

Goals are important. They help focus our efforts, reminding us what we're sacrificing for. If 20% every month starts to feel tight, a goal can provide extra motivation. Labelling it "emergency fund" emphasizes the urgency too. 

Most experts recommend building an emergency fund with enough to cover three months' worth of your monthly budget - including needs, wants and savings.

That might sound like a lot and get a little overwhelming. But you don’t have to build your emergency savings all at once. 

You can build the fund slowly, with regular, small portions of your 20% savings plan. 

Save with goals

You've seen how goals work when you label them "emergency." Now try setting goals for other priorities. 

Set up separate funds dedicated to different milestones, like tuition or a trip or a gift for someone special. 

For example, if you want to buy a new car next year, figure out the purchase price and divide it by 12, so you know how much to put aside every month. 

Think about long-term goals, like a down payment on a home, and fun short-term goals, like an outfit you've always wanted. 

Many employers offer retirement accounts, like IRAs and other retirement savings tools, that you contribute to automatically every month. In some cases, an employer matches your contributions too. 

Some goals are best matched with special funds that offer tax advantages, like Roth IRAs for education costs. 

Work on your credit card debt

The sooner you pay off your credit cards, the more you can save toward all your goals. 

Try to prioritize your credit cards, paying off first the ones with the highest interest charges. All the money spent on credit card interest could be growing and earning you interest in a high-yield savings account. 

Use Bright to save more

Bright can help you save more - automatically. With a personalized Bright Plan, you can set your own and your own pace. 

Bright learns about your finances and studies your spending habits, then throughout each month, moves funds to a Bright Savings account based on what you can afford, even adjusting automatically when your income, habits or goals change. 

Instead of working with formulas or stretching your numbers every month, your Bright Plan builds your savings for you, automatically. 

Bright can also pay off your credit cards faster, following your goals and your finances, and making payments for you, always on-time and optimized to lower your interest charges. 

If you don't have it yet, download the Bright app from the App Store or Google Play. Connect your accounts, set a few goals, and let your personalized Bright Plan start building your savings.

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Recommended Readings:

How to Save Money: 8 Quick Ways to Save More

How does Bright build more savings?