How much of my paycheck should I save?

Sound familiar? You’re not alone if you’ve ever sat around and wondered that. A lot of people aren’t sure how much of their paycheck they should save each month. But it’s not a cut-and-dried answer. It all depends on your money goals and what matters to you.

A lot of people aren’t making saving a priority these days—78% of Americans live paycheck to paycheck.¹ But if you can put some money into savings, you can keep yourself from falling into that paycheck-to-paycheck trap.

How Much of My Paycheck Should I Save Each Month? 

A lot of money experts swear up and down that you should save at least 20% of your paycheck each month. And that’s a great number to shoot for if it fits into your savings goals. Sometimes, you might need to save more or less depending on where you’re at in your money journey and what fits in your budget.

But we’ll get to that in a second. First up, let’s talk about another popular savings rule you’ve probably heard of—and why it’s not the best option . . .

50/30/20 Rule 

The 50/30/20 rule is a way of budgeting that divides up your money into three categories: needs (50%), wants (30%) and savings (20%). Some people praise this way of managing their money, but they aren’t paying attention to the flaws it has. Like how the numbers stay the same—no matter what stage of life you’re in or what your money situation is like. Look, if you’re in debt, you don’t need to be spending 30% of your income on wants. That’s just nuts.

And somehow you’re going to split up all saving into only 20% of your income? That means things like emergency fund savings, paying above the minimum payments on your debt, saving up for big-ticket items, and your future retirement all fall into this category. And you’re supposed to be saving for all those things at the same time. Sorry, but that plan won’t help you become a millionaire.  

What Are Your Savings Goals? 

Before you start figuring out how much of your paycheck you should save, you’ve got to know what your savings goals are. Saying “Well, I just want to save some money” isn’t good enough. You’ve got to know your goals in order to make them happen. So take some time to really think about your goals so that you know how to make your money work for you now to reach those goals. Your savings goals should be written down somewhere, be specific, be measurable, have a deadline, and they should be your own goals—not your mama’s.

On top of that, how much of your paycheck you should save depends on what Baby Step you’re on. So let’s cover that:

How Much of My Paycheck Should I Save in Baby Step 1? 

This first step right out of the gate is all about saving up $1,000 as fast as you possibly can. Not $5,000. Not $200. We’re talking 1,000 bucks—not a penny more or less. So, with that in mind, you might be wondering, How much of my paycheck should I save? The answer is make a budget, cut back on your spending, and sock away $1,000 as quick as you can. Our research at Ramsey Solutions found that 45% of Americans have less than $1,000 saved for an emergency—don’t be one of them.

Maybe you can scale back enough to save $500 from each paycheck and knock this out in a month (that’s awesome!). Or maybe saving even $75 from each paycheck is really stretching it for you. That’s okay! Sell some stuff to help you hit the 1K mark even faster. And no matter what, get on a budget, make a plan, and stick to it. Before you know it, you’ll have $1,000 saved up for Baby Step 1 and can move on to the next step.

How Much of My Paycheck Should I Save in Baby Step 2?

All right, put on your big boy or big girl pants—because we’re about to say something that you’re probably not going to like. When you’re paying off debt (Baby Step 2), you need to take your savings down to that $1,000 we just talked about and toss any extra money you had saved up at your debt. Ouch. Yeah, that one stings a little. But let’s dig into the why behind it. Before you roll your eyes, just hear us out.

Let’s say you have $7,000 in your savings account but you owe $15,000 in student loan debt. That $7,000 that you feel so good about really isn’t yours. See, as long as you have debt to your name, that money belongs to someone else. So just go ahead, bite the bullet, and pay off $6,000 of your debt. That would drop your debt balance down to the single digits (yay!), and you’d still have that $1,000 emergency fund as a buffer between you and anything that could go wrong in life. Plus, the sooner you’re out of debt, the sooner you can start saving again!

In Baby Step 2, you shouldn’t be saving money from your paycheck—every extra dollar should be going toward getting you out of debt. But let’s clear the air here: Just because you’re in Baby Step 2, that doesn’t mean you can’t save up for expenses with sinking funds (in fact—you should). A sinking fund is a way to save up for those big expenses you know are coming, like Christmas presents, annual insurance premiums, and even car repairs. The money you put aside in your sinking funds each paycheck shouldn’t add up to a crazy high amount, but it’s true—you can still cash flow planned expenses even while in Baby Step 2.

How Much of My Paycheck Should I Save in Baby Step 3?

You did it! You paid off all your debt and officially made it to Baby Step 3 (saving a fully funded emergency fund). This is where you get to really put the pedal to the metal and flex those saving muscles. With no debt payments, you can put a lot more of your paycheck toward savings—and in this case, saving up a fully stacked emergency fund.

Remember, even though you’re out of debt now, you’re still in game-on mode and saving every bit of money that you can to build your fully funded emergency fund. Let’s say you were putting $600 from each paycheck toward your debt payments. Well, now that you have zero debt, you can put that $600 from every paycheck toward your big emergency fund. If your emergency fund goal is $5,000, then you’ll be able to hit that after eight paychecks (that’s only four months if you’re paid twice a month).

How is this one different than the first Baby Step? Well, in Baby Step 3, you’re focused on saving up three to six months’ worth of expenses. Basically, you’re battening down the hatches and preparing for life’s big storms here—like an unexpected job loss. This is the money that should be able to see you through the storm for three to six months if you didn’t have a paycheck coming in.

How Much of My Paycheck Should I Save in Baby Step 4 and Beyond? 

This is where your saving meets investing and creates a beautiful little thing called compound interest. When you reach this point and are ready to invest (Baby Step 4), you’ll start putting away 15% of your income toward retirement. Let’s say that again in case you didn’t catch it the first time—are you asking yourself, “How much of my paycheck should I save at this point in the game?” The answer is saving at least 15%.

Here’s the great thing about setting aside money to invest—that money is going to increase! So even though you might think taking 15% from your paycheck is a pain in the neck, that money is going to grow and grow. And one day (when you’re retired), you’ll be thanking your past self for putting aside that cash.

Where Should I Put My Savings? 

Put your savings somewhere you aren’t tempted to spend it. That doesn’t mean you have to bury it in the backyard, but don’t just leave it sitting in your checking account where you could spend it in a second.

Where to Save Your Starter Emergency Fund (Baby Step 1) 

Putting the money in a safe, separate savings account is A-okay. If you can find a special savings account that makes you a few bucks a year in interest, cool. But keep in mind, you’re not trying to get rich from the interest here. You just need to keep that $1,000 where you can get to it easily—but not too easily that you’re constantly dreaming about spending it.

Where to Save Your Fully Funded Emergency Fund (Baby Step 3) 

When you’ve got the big papa of emergency fund savings on your hands, your best bet is to park that in a money market account. It’ll stay tucked away safe and secure, but you’ll also be able to write checks from the account and get to it when you need it. We hope that’s not too often (stay away, Murphy).

I Can’t Save That Much From My Paycheck—Now What? 

Honestly, we get it. If you’re living paycheck to paycheck and just barely making it by each month, it’s going to be really hard to find extra money to save. But that doesn’t mean you can’t save. Here are a few ways you can find extra money to save from your paycheck each month.

Sell Stuff

Take a quick look around your home. We bet you’ll find a ton of stuff you aren’t using or don’t even like anymore. Sell it! Like they say, “One man’s trash is another man’s treasure”—and it’s true. You might think that old toddler bed collecting dust in your attic isn’t worth much, but you can probably get $40 on Facebook Marketplace or at a garage sale. You never know until you try. So, spend a Saturday afternoon looking for stuff you can sell to give your savings a big boost.

Take on Another Job 

When you need some extra cash, one of the best things to do is get to work. Side hustle, here we come! Okay, so this one is going to take a little more commitment than one Saturday afternoon. But maybe you can work part-time three or four times a month to give your savings that extra push. A ton of places hire for part-time work—cashiers are always needed at retail stores, and you can even make your own schedule working for Uber, Lyft or DoorDash.

How much of your paycheck should you save from your second job? Heck, maybe you can save most of it. Wouldn’t that be awesome. And if you’re able to budget your regular income enough to cover all your monthly expenses, then there’s no reason why you can’t just dump a big chunk of this paycheck into your savings.