More than income or investment returns, your personal saving rate is the biggest factor in building financial security.

But how much should you save? $50 per month? 50% of your paycheck? Nothing until you’re out of debt or can start earning more money?

How much should you save every month?

Many sources recommend saving 20% of your income every month.

According to the popular 50/30/20 rule, you should reserve 50% of your budget for essentials like rent and food, 30% for discretionary spending, and at least 20% for savings. (Credit for the 50/30/20 rule goes to Senator Elizabeth Warren, who reportedly used to teach it when she was a bankruptcy professor.)

Read more: The 50-30-20 budget explained – an easy budgeting method to follow

We generally agree with the recommendation to save at least 20% of your monthly income. But it’s not always that simple to suggest the right percentage of income for YOU to save.

If, for example, you’re a high earner, you’d be wise to keep your expenses low and save a much larger percentage of your income.

On the other hand, if saving 20% of your income seems implausible, or even impossible at the moment, we don’t want you to get frustrated. Saving something is better than nothing.

But if you want a shot at being secure through old age — and having some extra cash for things you want — the numbers suggest that 20% is the target you’ll want to reach or exceed.

Why 20%?

According to our analysis, assuming you’re in your 20s or 30s and can earn an average investment return of 5% a year, you’ll need to save about 20% of your income to have a shot at achieving financial independence before you’re too old to enjoy it.

Here’s the thing: If you want to work like a dog every day until you die, maybe you don’t need to save all that much. Sure, you’ll still want an occasional vacation and something in an emergency fund in case your car coughs up a radiator.

Beyond that, however, we save so that one day we no longer have to work for the money. For most of us, that day won’t come for many decades, but there are regular working people who reach it as young as 40 or even 35.

Read more: Emergency funds: everything you need to know

What are you saving for?

True financial independence means that you have enough money that you never have to work again.  You can live off your current savings, along with the growth, interest, or dividends for the rest of your life.

How much money do you need to save to do that?

Good question. The simple answer: It all depends. It depends on whether you’re willing to live at the poverty line, need two homes and a sailboat, or fall somewhere in between. It also depends on how well your investments perform. If you can earn an average annual return of 7% on your money, you can stop working with a lot less than if you only earn 3%.

For simplicity’s sake, we’ll use the common “4% rule”, which states that, theoretically, you could withdraw 4% of your principal balance every year and live on this indefinitely. That means that you’ll need to save 25 times your annual expenses to become financially independent. (If the math doesn’t shake out for you, remember 25 x 4 is 100, and 100% = your total balance).

There are problems with the 4% rule, of course. For one, there are no risk-free investments that yield anywhere close to 4% today. Sudden inflation could also become a problem.

Also, if the growth on your investments is greater than 4% you are living on less than could and your account balance is growing each year. That’s a great problem to have but it means you are living a lower lifestyle than necessary.

Bottom line: there is risk in everything and if you assume a strict 4% withdrawal rate you could end up either not having enough money… or having way too much.

I think it’s useful to plan using the idea of a 4% withdrawal but then make adjustments as needed when the time comes.

How long will it take?

The chart below shows how long it will take you to amass 25 times your expenses based upon the percentage of your income you save. (We assume a 5% average annual return.)

% of income saved Time required to save 25x annual expenses
5% 66 years
10% 51 years
15% 43 years
20% 37 years
25% 32 years
50% 17 years
75% 7 years
90% less than 3 years

As you can see, by saving 20% of your income you’ll hit 25 times your annual income in 37 years. That means a 30-year-old who starts saving today (assuming no prior savings) will hit this target by 67.

And keep in mind, this is assuming only 5% growth. The stock market historically returns much more than that over long periods of time.

The lower you keep your expenses, the sooner you’ll achieve your personal savings goal. As it both lowers your overall goal, and allows you to save more.

Also, our savings chart doesn’t take taxes into account.

Tax-advantaged accounts can help

For simplicity, our chart looks at before-tax money going in, assuming that you’ll pay taxes on the money coming out. But tax-sheltered retirement accounts like 401(k)s and IRAs change that equation for the better.

If you qualify for a Roth IRA, use it! Money you contribute to a Roth IRA is taxed now but your withdrawals are tax-free when you’re retired. So the more you save in a Roth, the less you’ll need to save in total because you won’t have to pay taxes on the Roth withdrawals in retirement.

Contributions to a 401(k) can also help ease the pain of reaching a 20% saving rate, assuming you can take advantage of at least a 5% match from your employer when you put money into a 401(k). This means you’ll really only need to save 15% of your paycheck.

Plus, if you’re putting money into a 401(k), this money will be deducted from your paycheck before taxes which means that each dollar you deduct will save you some after-tax cash. But you will pay taxes when you withdraw the money in retirement.

Getting to 20% – an example

Let’s say you make $1,200 every two weeks. After taxes, it’s $1,000. Your savings goal should be 20% of net (after-tax) income, or $200 from every paycheck.

If you make a pretax contribution to a 401(k) of 5% of your paycheck and it’s matched by your employer, that means you put aside $60 from your check before taxes (and your employer kicks in another $60). That’s $120 into your retirement account every month.

You still owe yourself $80. You could put half into a Roth IRA for additional retirement savings and the other half to build up an emergency fund. What you do with it doesn’t matter as much as the fact that you saved it at all.

Between pretax savings and employer matching, saving 20% of your paycheck gets a bit easier.

Calculate how much you can save:

What if I just can’t save that much?

Don’t stress. Saving something is better than nothing.

I can already hear the shouts from the comments: “How ridiculous! I spend almost everything I earn, and on rent, food, and transport! This website is out of touch with its audience!”

Okay, okay. If the 20% scenario I just sketched out doesn’t fit your situation (which is going to be unique to you), then please don’t think that I’m saying you’re a failure. As I said, we believe everyone should aim for 20%, not that everyone can hit that target on their first try.

Start small. Start with 1%. When that doesn’t sting so bad, go up to 2% or even 3%. Maybe you hit 5%, and that feels pretty good. Maybe you take a crazy leap for 10%, and that leaves you stressed and strapped, so you scale back. It’s a process, a literal give and take.

Through it all, keep that 20% goal in mind. It’ll keep you from getting complacent. Whenever you get a raise, raise your saving rate! You were doing fine without that money before, and you shouldn’t miss it if you never get used to having it.

Finally, if you’re in debt, you might already be saving more than you think. That’s because paying down debt is essentially saving in reverse.

Think of it this way: One day, you’re debt free. But you’ve been making big monthly payments to your debts for years. If you suddenly begin to save that money, what would your saving rate be?

The trick here is not replace that car payment or credit card bill when you pay it off.

Related: How to get out of debt on your own

Where should you save?

Where you should save your money really depends on where you find yourself in your saving journey. If you don’t have an emergency fund yet, a high-yield savings account (HYSA) is a great place to build one. Easy access is of the essence in emergency situations, and you can withdraw money from a HYSA quickly. And unlike most checking accounts, a HYSA will generate, you guessed it, a high yield of interest.

Ready to start saving? Compare today’s top saving account rates and open one today!

Keep in mind that the interest you can earn with a high-yield savings account pales in comparison to what you can earn long term (e.g., when saving for retirement) by investing your money.

If you already have an emergency fund (good for you!) then start investing.  Your 401(k) is a great place to start since you can get a match form your employer.

If you don’t have access to a 401(k) then consider starting with a robo-advisor, in which the funds you contribute are invested in pre-built, diversified portfolios according to your risk tolerance.

Here’s a list of robo advisors we recommend.

If you ultimately decide that you want more control over your portfolio, you can switch to an online brokerage, where you can make your own trades and custom build your own portfolio.

I hit 20%. What’s next?

Keep going! As long as you’re not depriving yourself today, it’s difficult to save “too much.”

Take the same advice we gave to those who are struggling to hit 20%: Test your limits, and try to increase them. Building up strength (either physical or financial) takes discipline and consistency, as well as a willingness to listen to your body (or your bank account) when it tells you your current regimen is just too intense.

But saving more is definitely a good idea. Many retirement experts now say that the traditional recommendation of saving 15% of income is honestly too low to guarantee a comfortable retirement, and that 25% or 30% is a safer bet.

Also, keep in mind that if your goal is to retire early or someday leave a well-paying but high-stress job, your saving rate will likely need to be 50% or more. This may seem impossible, but it might give you pause when making major financial decisions like deciding how much to spend on a house or car.

The most important thing is to start saving. How much will vary from person to person, as well as from year to year. The best savings philosophy, in keeping with our sports metaphors, comes from Nike: Just do it.

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