If you’re the type of person that keeps asking yourself, “How much money should I save each month?” consider yourself well on your way to financial independence and freedom. I say this because if these are the types of thoughts you’re having, then you’re probably more financially savvy and aware than a whole lot of other people. That’s great, congratulations.
“How much should I save each month?” is actually a very personal question because we all have different sources of income and different financial goals. Also, we have different lifestyles and spending habits, which all count towards how much you can save each month.
I’m pretty sure you’re going to scoff at how much I save each month – which you’ll find below, and that’s all good. I’ll help you find the right balance.
For example, if you have kids that you sometimes feel are sucking you absolutely dry financially, I’m guessing you have relatively less to save than a bachelor with no kids. So, there’s no set dollar amount to answer the question, “How much should I save each month?” Although, there are some principles that you must get used to for financial success.
Why saving is important
I’ll start by telling you this, saving is the most important principle to get right if you’re pursuing financial freedom. A lot of people think multiple streams of income and fancy investments are the way to go. That’s not true. Saving should be the starting point, otherwise, you’re doing FIRE all wrong!
I like to think of saving as a way to gain better control of your money. Whether you have $10 or $1,000,000, saving is something you need to master so that the money you do make through investments or business doesn’t vanish into thin air.
In fact, I love saving so much that I’ve started teaching my kids about it already. It’s a great way for them to get used to it from a young age so that it almost becomes second nature. At the same time, they’ll be able to really thrive in the future if they start saving now. Which means they’ll stop bothering me for money sooner than expected. I love the sound of that!
Saving is boring and there’s nothing fun about it
If that’s the mentality you have about saving then you’re going to have a very long and miserable life! Saving can actually be fun, it’s just about doing it right and then watching the zeros increase in your bank account.
There’s been a trending challenge on social media where parents put a bowl of marshmallows in front of their kids and then leave the room. It’s actually an instant gratification test. If the kid has eaten the marshmallows when they return, they clearly have a long way to go in terms of understanding delayed gratification and long-term benefits.
On the other hand, if the parent returns to a bowl full of marshmallows, then the kid gets rewarded with more at dinner time. The same concept and principles apply in finance and savings actually, so it’ll be in your best interest to look forward to reaping the benefits that come with delayed gratification.
Your approach and mindset when it comes to saving could literally change your life. If you see it as something that’s just there to make your life boring, you’re obviously going to hate it. So change your thinking and focus more on the future and how amazing your finances will be if you just keep at it.
How much should you save each month?
That’s for you, your household and your 5 cats and 4 dogs to agree on. Personally, I have the goal of 50%+. Sounds a bit crazy, doesn’t it? It’s actually not. See, people love asking, “How much should I save each month?,” but then turn around and sulk because they don’t quite like my answer. Unfortunately, I’m not here to nurse your feelings.
I’m here to help you get your finances in check. If it means adopting a frugal lifestyle for a few months or so, then so be it. Just make sure saving becomes natural to you before you even attempt to diversify your investment portfolio, otherwise you’re wasting your time.
By simply getting into the habit of saving (because that’s what saving really is – a habit), you’d find that you’d end up miles ahead of your peers. Then the next thing would probably be them coming to you and asking, “How much should I save each month to get to where you are?” I know this all too well (sigh).
Instead of saying you’ll save $x each month, rather commit to saving a certain percentage of whatever income you generate each month. That’s a savings principle I’m all for.
If you are having issues
I must admit, saving isn’t something that comes naturally to a lot of people. I’ve seen it time and time again that the minute some people start getting more income, they see it as the most opportune time to upgrade their lifestyle. No matter how lavishly they’re already living.
That’s why whenever someone comes to me and says, “Leif, how much should I save each month?,” my heart does a little happy dance. The difference between the rich and the super wealthy is how they handle their money, and because saving may be a foreign concept for some people, they’re bound to run into a few issues or fail to start their savings journey.
Worry not, I’ve taken the time to share some of my top tips – some from personal experience and others not – so you can also get a leg up in the finance game.
1 – Have a super frugal 6 months to 1 year
You’d be surprised what just a few months of living like a cheapo could do for your finances! Sure, you’ve probably committed to cutting back on certain luxuries on a particular month. But that never really lasts, does it? You relapse not too long after that and end up going back to your horrible spending habits eventually, right? So nothing really changes.
See, I like to think of frugal living like a juice cleanse for your finances. To get maximum impact, you have to implement it over an extended period of time. Don’t get me wrong, it doesn’t mean that you have to live like a cheapo for the rest of your life! Relax, that’s not where I’m going with this. It’s a temporary solution to jumpstart your saving efforts.
That still doesn’t answer the “How much should I save each month?” question, Leif! You’re absolutely right, but your financial goals can only be reached once you get your savings in check. It’s all about your income versus spending. So, if you manage to decrease your spending, guess what? That ratio increases in your favor! Big win for your finances.
2 – Have clear goals
Depending on your financial goals, you’ll be able to figure out the answer to “how much should I save each month” for yourself. In order to plan accordingly and decide on your steps, you need to have a clear picture of where you want to go or what you want to achieve. It seems like a pretty obvious thing, but A LOT of people seem to overlook it.
Again, you can’t look at your friend who’s doing super well and think you can just copy and paste their goals and you’ll be set. That would be a pretty weird way to do things. There are other things that impact your financial goals, such as your overall life goals. So factor those in when you’re setting financial goals.
3 – Avoid marketing
What if I told you that the one thing that’s standing between you and financial freedom are all those adverts and promos that you’re being bombarded with on a daily basis? How so? Because they keep you spending on nonsense that you probably don’t need, which means less money for you to save each month!
If you spend hours and hours online and you end up clicking on just about every marketing piece that pops up, stop it! Without even realizing it, you’re actually eating away at your savings and putting your financial freedom on the line by spending frivolously or spontaneously. If it’s not in your budget or helping you reach your financial goals, run!
That’s the whole point of marketing, right? To get you to spend your hard-earned money. Be careful.
4 – Explore other sources of income
If you’re still asking yourself, “How much should I save each month?,” have a look at how much you’re bringing in. Obviously, you’ll be able to save more than the average person if you have multiple streams of income.
There are age-old ways of making money, like working yourself to the bone, and then there are new-age ways of making money. You can explore whichever works for you. I like to have my hands in a bit of both, but with a good balance. Passive income is also something I’m big on. (For reference – I’m into real estate.) If it can make me money with minimal intervention from me, tell me more!
The more money you’re able to make, the more you’ll be able to save. So, the answer to “How much should I save each month?” depends on how much you’re able to make each month.
5 – Get your priorities in order
Regardless of where you are on your savings journey, it’ll be a hundred times more difficult to reach your goal if you keep getting distracted. So, the best way to avoid this is by getting your priorities in order. If you decide you need to cut back on a few things so you can save a bit more each month, jot down what it is that you need to get rid of.
Everywhere you go, people will tell you to cut back on that morning coffee that you buy at the café around the corner each morning. I say, you don’t have to! What if that morning coffee is what fuels you and gets you ready to conquer the day and make more money???? Perhaps you’re the type that can do without the weekly dinner with friends instead.
Basically, what I’m trying to say is that your priorities will determine where you should cut back on. What means the world to someone else could very well be something you can and are willing to live without, so plan your finances to suit your lifestyle.
6 – Challenge yourself and set monthly targets
If you’re anything like me, you probably thrive on stretching yourself and seeing just how many challenges you can tick off. Why not use that personality trait to make yourself rich? This is something to try especially if you’re still finding your feet and getting started with saving.
I’ve set some pretty crazy financial targets in my life and actively worked towards reaching them. And you know what, I don’t think there’s a better feeling and sense of satisfaction than reaching a target that may have seemed pretty absurd at first.
