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When it comes to budgeting, you need to make sure you save for the future. Just how much of your paycheck should you save?

If you want me to give you a dollar amount of your paycheck to save, you’ve come to the wrong place. Everyone is different. That isn’t just about your pay each month but about the amount you need to save for the future and even the amount that you have available from your paycheck to save.

It’s all about percentages. It’s also about your current financial situation. Here’s a rough guide to understand how much of your paycheck you should save—but why you need personalized financial advice at the same time.

What percentage of your paycheck should you save?

Let’s start with a percentage amount. The aim of the budget* is to save 20% of your paycheck. This can be in a mixture of savings and investment accounts. You want to use that 20% to save for an emergency, your future, vacations, and more.

I split the 20% up so that half of that goes into my investments for the future. Another quarter of it goes into my emergency fund, and then the rest is split across the smaller types of savings that I have. It’s a great way to balance out all my needs, making sure that my long-term and mid-term future is covered.

Let’s say you have a $2000 paycheck. That means you’re aiming to save $400.

So, if that was me, $200 would go toward my long-term retirement investment. Then $100 would go toward my emergency savings. I would then put smaller amounts from the last $100 in my vacation fund, sinking fund, furniture fund, and birthday/Christmas fund.

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Take a look at your debts first

Your paycheck needs to pay off your debts before you start saving too much. I do recommend having a small emergency fund while you’re paying off debts but don’t focus too much on saving on emergencies and up for vacations while you’re clearing debt. The interest rate on your debts is going to be much higher than you’ll gain in any type of investment or savings account.

So, if your debts are eating up the majority of your paycheck, look at clearing them as soon as possible. This can be either with the snowball method or the avalanche method. You want to focus on getting all the debts down as much as possible so that you can then focus on saving for the future.

When most people ask how much of their paycheck you should save, they don’t always look at the outgoings. They’re so focused on savings that they forget about everything else unless it’s an immediate living expense. If you can only save 5% of your paycheck while you clear the debts, then do that and put it in your retirement fund or your emergency fund.

Once your debt is gone, you can look at other savings.

You can save more if you want or less if you need

The 20% is a general rule when following the 50/30/20 saving method. This isn’t what everyone wants to follow. It may not even be what everyone can follow with the way inflation is going up.

Your needs aren’t supposed to go up above 50% of your paycheck. That includes your rent/mortgage, your food, your utility bills, and insurance costs. But let’s face it. With the housing crises around the world and inflation going up, a lot of needs are going above 50%.

It can mean that you don’t have the 30% available for wants or the 20% for savings. You need to change those ratios slightly.

And what if you don’t need 30% of your paycheck for wants? What if you would prefer to save more* and only put 20% of your paycheck toward wants? This is allowed. You can make your budget into something that suits you. I just highly recommend that you try to save 20% of your paycheck.

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Are you struggling with how much of your paycheck you should save? Get in touch today so we can look at your budget and assess your own financial situation.