How Much Should You Save From Every Paycheck?

You’ve vowed to boost your savings on a regular basis — a commendable goal.

After all, a habit of stashing away your money consistently is important to reaching financial milestones.

So, you’re trying to answer this key question:

How much should you save from every paycheck?

The truth is…

There is no right answer.

But, if you must follow a safe rule, you can aim for the 50/30/20 rule. It is a strong starting point to budget your income in a way that will allow you to address your bills, discretionary spending, and personal savings.

And, you can tweak it to speed up the progress toward your savings goals.

The 50/30/20 Rule

Because everyone is in a different financial situation, it’s difficult to state any single dollar amount that you should save from each paycheck.

That’s why we’re using percentages, which is the portion of your paycheck that should go toward any particular financial obligation.

  • 50%: Essentials (e.g., rent, mortgage payment, utilities, etc.)
  • 30%: Discretionary spending (e.g., entertainment, fun, eating out, etc.)
  • 20%: Personal savings

50%: Essentials

These are the expenses that you simply cannot avoid on a monthly basis.

You need to pay for shelter and utilities. You might even include costs such as health insurance, car insurance, transportation, and childcare.

30%: Fun

A good portion of your income can go toward fun — things you don’t need. But, it is important to spend on enjoyment if you’re able to do so without compromising your budget.

This means going to the movies, eating out at a nice restaurant, partaking in a hobby, or buying a new video game, among a never-ending list of things you can spend on for entertainment.

20%: Savings

Being able to save 20 percent of every paycheck is a very solid financial position. Many people do not save all.

When you’re socking away savings every single paycheck, you’re slowly (but surely) making your way toward any savings goal that you have.

An example for low-income earnings

Let’s say that your after-tax earnings per paycheck is $1,000 (annual salary of roughly $30,000).

Every paycheck (semi-monthly), you should allott the following amounts toward these financial obligations:

  • Essentials: $500 (or $1,000 per month)
  • Fun: $300 (or $600 per month)
  • Savings: $200 (or $400 per month)

Following this savings plan, you’d have contributed $4,800 toward savings in one year.

An example for the average American

According to the Bureau of Labor Statistics, the average American household has a salary of about $76,000. That’s a semi-monthly paycheck of roughly $2,300 after taxes.

Here’s your paycheck breakdown if you’re following the 50/30/20 rule:

  • Essentials: $1,150 (or $2,300 per month)
  • Fun: $690 (or $1,380 per month)
  • Savings: $460 (or $920 per month)

With this annual income, you could put $11,040 in savings per year.

Where to Save Your Money

Once you’ve figured out how much you should be saving, you need to know where to put the money.

These are two of the simplest ways to do it:

Employer-sponsored plans

If offered by your employer, you should take advantage of any retirement plan that is sponsored by the company. Most commonly, this is a 401(k) plan that offers various tax advantages.

With a traditional 401(k), you may deduct your contributions on your tax return to lower your taxable income. When you take money out of the 401(k) during retirement, your earnings are taxed.

With a Roth 401(k), your contributions do not lower your taxable income, but earnings are not taxed upon withdrawal (during retirement).

In either case, with every paycheck, your company will put a percentage into your 401(k).

The best part:

Your company may even offer a contribution match up to a certain percentage of your income.

For example:

Your company offers a 100 percent match up to 3 percent of your salary.

If your salary is $30,000 per year, the company will put up to $900 of it’s own money into your 401(k) account if you contribute at least $900 of your own money.

Essentially, it’s free money as long as you contribute as well.

An online savings account

At the very core of your savings should be at least one savings account.

To be clear:

It should be an online savings account.


Online banks don’t have to pay the costs of operating branches. As a result, they can offer much higher savings rates. Additionally, online savings accounts usually have no monthly fees to worry about.

Your typical bank bank, on the other hand, has basic savings accounts with terrible interest rates.

To make matters worse, they’re likely to charge a monthly fee if you don’t keep a few hundred dollars in your account.

How to Build Savings Effortlessly

One of the best ways to move money into savings on a regular basis is to take the work out of it.


You might not like the feeling of not touching your hard-earned money. Psychologically, when you transfer money to savings, you may consider as “losing money” and getting nothing tangible for it.

Or, you might simply forget to save.

To ensure that you’re putting money into savings, make it automatic.

With a 401(k) plan, the contributions are made with every paycheck without you having to do anything.

With a savings account, there are two easy ways to build your balance:

Direct deposit

Most people simply have their paychecks deposited into their checking accounts via direct deposit.

What many don’t know:

You can split your direct deposit across multiple accounts.

So, you can route part of your paycheck straight into a savings account. This way, you’ll never see the money hit your checking account — you won’t miss it if you never saw it there.

Recurring transfers

Another nifty savings method is to set up recurring transfers that will move money from your checking account into your savings account.

Tell your bank how much and how often to move the money and you won’t have to deal with the manual process of transferring funds into savings.

What If You Can’t Save as Much?

Understandably, not everyone can afford to save 20 percent of every paycheck.

That’s fine.

You can start small.

Can you put away 10% or just 5%? How about just $20 per paycheck?

What you should care more about is the development of a savings habit that is consistent. Over time, you might realize that you can save more than anticipated.

If so, raise that amount slowly. Take smaller steps to get to the 20 percent mark.

What If You Can Save Even More?

This is a great position to be in.

Usually, you’re able to save more because you’re spending less on essentials and/or fun — possibly thanks to a high income.

Increasing the amount of savings per paycheck will make a big difference in the time it takes to reach your savings goals.

If you want to retire early or have bigger (or more expensive) savings goals, saving more will likely be a necessity.


You’ve already taken an important step in reach your financial goals: taking the time to find out how to do so.

Remember that it doesn’t come easy.

There isn’t anything exciting about saving — it’s boring. And, that’s a good thing.

Consistency is key and, with a little boost (provided by 401(k) matches and high-yield savings accounts), you’ll be well on your way to the goal line.