How much of your salary should you save?

Where does the 20% come from?

From the 50/30/20 rule: half of your income for needs, 30% for wants, and 20% for savings and extra debt payments. On a salary of 3,000 that is 600 a month.

It is a useful mark to measure yourself against. It is not a law, and it was never meant to fit every salary. The rule is compared with three others in the best way to split your salary.

Is 20% realistic for me?

It depends on your bills, because you can only save from what the bills leave. Take two people who both earn 3,000 and both give 5%:

	Bills of 1,050	Bills of 1,900
Left after giving and bills	1,800	950
20% of the salary	600	600
That is, of what is left	33%	63%
A quarter of what is left	450	237.50
That is, of the salary	15%	8%

For the first person, 600 is a third of what is left: demanding, but possible. For the second it is almost two thirds, and it will not last.

So measure your saving against what is left after your bills, not against the whole salary. A quarter of what is left is a strong start for both people, even though it is 15% of one salary and 8% of the other.

Should I save a percentage or a fixed amount?

• A percentage follows your income. In a good month you save more, in a weak month less, and the plan still adds up. Use it if your pay changes.
• A fixed amount fits a goal with a date. To have 6,000 in twelve months you need 500 a month, whatever the percentage.

You can use both: the fixed amount first, then a percentage of the rest.

What counts as saving?

Money you move out of reach of daily spending, for a later purpose: an emergency fund, a home, studies, retirement, investments. Extra payments on a debt count too, because they improve your situation in the same way.

Two things do not count:

• Money left in your daily account by chance. It has no purpose, so it will be spent.
• Money for something you will buy in a few weeks. That is spending with a delay. It is a good habit, but it does not build anything.

How do I raise my savings rate?

• Save on payday, not at the end of the month. What waits gets spent. The payday routine puts the transfer before the spending.
• Go up one point at a time. On a salary of 3,000, one point is 30 a month. You will not feel it, and after a year of small steps the rate has changed.
• Use every raise. When your pay goes up, send half of the increase to savings before you get used to it.
• Change one large cost. A cheaper phone plan or a shorter commute saves more than a month of small sacrifices.

What should I save for first?

1. One month of basic costs. A small cushion, so a bad week does not become a debt.
2. Debts that charge interest. They usually cost more than savings earn.
3. A full emergency fund, three to six months of basic costs.
4. Long-term goals: a home, retirement, investments.

The order matters more than the speed. Each step makes the next one safer.