How Much Of Your Income Should You Be Saving?

Advertiser Disclosure

Student Loan Hero Advertiser Disclosure

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.

Editorial Note: This content is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by the financial institution.

how much money should I save
Logo

We’ve got your back! Student Loan Hero is a completely free website 100% focused on helping student loan borrowers get the answers they need. Read more

How do we make money? It’s actually pretty simple. If you choose to check out and become a customer of any of the loan providers featured on our site, we get compensated for sending you their way. This helps pay for our amazing staff of writers (many of which are paying back student loans of their own!).

Bottom line: We’re here for you. So please learn all you can, email us with any questions, and feel free to visit or not visit any of the loan providers on our site. Read less

Whether you’re several years into a steady job, just out of college, or in the process of creating your own path, the question remains: how much money should I save?

While we’ve interviewed some experts to help answer this question, we also dived into the basics of figuring out your own savings goals. That way, you can create a custom plan that will fit your own financial and lifestyle needs.

To understand exactly how much you should be saving, start with these five questions.

1. Are you a spender or a saver?

This is a question that ultimately requires you to be honest with yourself.

If you’re a natural-born saver then you’ll have an easier time when it comes to saving money for future goals. However, if you’re a spender by nature then you’ll have a bit more of a struggle.

Neither type of money personality is necessarily good or bad. It’s just important to know which one you are so you can successfully handle it.

I’m not a very good saver, and I enjoy buying things that I deem valuable. This means I’m a bit more of a spender than a saver. Since I’m not automatically inclined to saving money, I have to put barriers in place to create savings habits for me.

One way I accomplish this is by opening new savings accounts for each goal, such as car repairs, Christmas gifts, or travel funds. Then I set up automatic transfers of small amounts of money to those bank accounts every week.

Colin Ashby, a millennial financial writer from RebelWithaPlan agrees with my method.

“The important thing about saving is to start somewhere and to automate,” Ashby explains. “Ideally, you should be saving 20 percent with 10 percent going to retirement and 10 percent going to other savings goals.”

“But if you can’t save a certain percentage of your income, focus on the amount you can save and make periodic increases from there,” adds Ashby. He’s currently putting away 30 percent of income towards savings goals.

Whatever type of money personality you are, whether that’s a saver or spender, will help you accurately determine how much of your income you should be saving.

2. What are your savings goals?

The amount of money you should be saving every month also depend on your savings goals.

What big life events are you hoping to achieve? How far into the future are these goals? These are the goals you want to stash away extra money for, even when you lose motivation to do so.

Doing the math, whether it’s saving for a 5-year or 10-year goal, will help you reach your savings goal amount in a timely fashion.

For example, if you want to save up for a down payment on a house, you’ll need at least 20 percent of the home price. If houses in your area go for an average of $250,000, this means you’ll need to save $50,000.

Depending on your income, it could take you anywhere from five to 10 years or more to save up the entire amount.

Jon Dulin from MoneySmartGuides has been a personal finance blogger for six years and financial services professional for a decade. He advises “recent college grads to save 20 percent of their income.”

“It should be easy to keep living like a college student so your costs are low when first starting out,” says Dulin. “Plus, the sooner you get accustomed to saving 20 percent, the easier it will be to handle when a mortgage payment and as kids come into the mix.”

Dulin’s currently saving between 40-45 percent of his income each year. He and his wife make it a point to save first and live on what is left over. Their ultimate goal is to be financially free by the time they turn 55.

Knowing your savings goals is an essential part of figuring out how much money you need to save to reach them. Be clear about exactly how much money you should save so you can direct your money wherever you want it to go.

3. What can you afford to save?

Another important component of saving money is understanding how your budget fits into the equation. More specifically, what bills do you have to pay and how much debt do you owe? Paying off bills and debt can greatly influence your progress towards saving money.

That’s why you should make additional payments towards your debt whenever you can, even if it’s just $20 or $30 extra. Or, find ways to reduce your lifestyle needs and research alternative companies who might offer the same services for lower prices.

Ultimately, no matter how much or how little you can afford to save, make it a priority. John Rampton, a serial entrepreneur and founder of free digital wallet Due, is currently saving 40 percent of his income. He advises college students to start saving 10 percent.

“The more you save early, the better it will be longer term for you to live the type of life you want,” Rampton says. “Have it automatically taken out so that you don’t have to think about it. Then lock yourself out of the money so that you can’t touch it — cause we’ll always find an excuse to do so.”

4. Are you committed to begin saving today?

Above all else, creating a savings habit means getting started today. That means you need to get your budget used to saving money from the beginning.

It takes my budget a good 90 days or so to recover from a financial emergency or a change in the way I budget. It’s likely that your budget will take a few months to get used to saving a portion of your income too. So time is of the essence.

Larry Ludwig, Editor-in-Chief, and founder of Investor Junkie suggests that as a recent college grad you should aim to save 15-20 percent of your income.

“The younger you are the more time you have to invest, so it’s important to start early,” Ludwig explains. “The magic of compounding interest makes it easier as you get older.”

Compounding interest is interest calculated on the principal, plus any accumulated funds. In other words, you could earn interest on the interest in your savings or retirement account.

What’s more, the longer you have to let those funds accumulate, the less you’ll have to save yourself. In this case, time is on your side.

5. Are your savings goals long term or short term?

The question of how much income to save also goes hand-in-hand with where to actually put your money.

Funds that you need access to on a regular basis, or for short-term goals, can be stashed in traditional savings accounts or money market funds. These accounts usually don’t charge any fees to open and will reward you a very small percentage of interest.

A long-term place to put your savings is a tax-advantaged account, such as a Roth IRA. One of the benefits of a Roth IRA is that you can withdraw up to $10,000 completely penalty-free to put towards the purchase of your first home.

Michael Mezheritskiy, President of the Milestone Asset Management Group, tells recent college grads to “set up a retirement account immediately. An Individual Retirement Account or 401k is ultra important to start saving as this will be a significant part of your income later in life.”

How much money should I save?

The general consensus among financial experts is to save anywhere from 10-20 percent of your income as a new college grad. Of course, if you can save more then do so. But the 10 percent mark is a good start.

At the end of the day, you should start where you are and save a percentage of your income based on whether or not you’re a spender or saver.

That’s the most important takeaway. Then, continue increasing your savings with time. Start small and let time be your best friend.

Interested in refinancing student loans?

Here are the top 6 lenders of 2018!
LenderVariable APREligible Degrees 
Get real rates from up to 4 Lenders at once

Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Laurel Road.

Laurel Road Disclosures

  1. VARIABLE APR – APR is subject to increase after consummation. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes.

2 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student Loan RefinanceFixed rates from 3.999% APR to 7.804% APR (with AutoPay). Variable rates from 2.480% APR to 7.524% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.480% APR assumes current 1 month LIBOR rate of 2.07% plus 0.91% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score
  2. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

3 Important Disclosures for CommonBond.

CommonBond Disclosures

  1. Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). The following table displays the estimated monthly payment, total interest, and Annual Percentage Rates (APR) for a $10,000 loan. The Annual Percentage Rate (APR) shown for each in-school loan product reflects the accruing interest, the effect of one-time capitalization of interest at the end of a deferment period, a 2% origination fee, and the applicable Repayment Plan. All loans are eligible for a 0.25% reduction in interest rate by agreeing to automatic payment withdrawals once in repayment, which is reflected in the interest rates and APRs displayed. Variable rates may increase after consummation. All variable rates are based on a 1-month LIBOR assumption of 2.08% effective July 25, 2018.

4 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Education Refinance Loan Rate DisclosureVariable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of August 1, 2018, the one-month LIBOR rate is 2.07%. Variable interest rates range from 2.72%-8.17% (2.72%-8.17% APR) and will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a cosigner. Fixed interest rates range from 3.50%-8.69% (3.50% – 8.69% APR) based on applicable terms, level of degree earned and presence of a cosigner. Lowest rates shown require application with a cosigner, are for eligible, creditworthy applicants with a graduate level degree, require a 5-year repayment term and include our Loyalty discount and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty and Automatic Payment Discount disclosures. The maximum variable rate on the Education Refinance Loan is the greater of 21.00% or Prime Rate plus 9.00%. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of their loan.
  2. Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer with the Education Refinance Loan. Borrowers should carefully review their current benefits, especially if they work in public service, are in the military, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans and replace those with the benefits of the Education Refinance Loan. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision at http://www.citizensbank.com/EdRefinance, including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.
  3. Citizens Bank Education Refinance Loan Eligibility: Eligible applicants may not be currently enrolled, must be in repayment of their existing student loan(s) and must make the minimum number of payments after leaving school. Primary borrowers must be a U.S. citizen, permanent resident or resident alien with a valid U.S. Social Security Number residing in the United States. Resident aliens must apply with a co-signer who is a U.S. citizen or permanent resident. The co-signer (if applicable) must be a U.S. citizen or permanent resident with a valid U.S. Social Security Number residing in the United States. For applicants who have not attained the age of majority in their state of residence, a co-signer will be required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Education Refinance Loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, certification of borrower’s student loan amount(s) and highest degree earned.
  4. Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  5. Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
  6. Co-signer Release: Borrowers may apply for co-signer release after making 36 consecutive on-time payments of principal and interest. For the purpose of the application for co-signer release, on-time payments are defined as payments received within 15 days of the due date. Interest only payments do not qualify. The borrower must meet certain credit and eligibility guidelines when applying for the co-signer release. Borrowers must complete an application for release and provide income verification documents as part of the review. Borrowers who use deferment or forbearance will need to make 36 consecutive on-time payments after reentering repayment to qualify for release. The borrower applying for co-signer release must be a U.S. citizen or permanent resident. If an application for co-signer release is denied, the borrower may not reapply for co-signer release until at least one year from the date the application for co-signer release was received. Terms and conditions apply.
  7. Average savings based on 18,113 actual customers who refinanced their federal and private student loans through our Education Refinance Loan between January 1, 2017 and December 31, 2017. The calculation is derived by averaging the monthly savings of Education Refinance Loan customers whose payments decreased after refinancing, which is calculated by taking the monthly student loan payments prior to refinancing minus the monthly student loan payments after refinancing. The borrower’s savings might vary based on the interest rates, balances and remaining repayment term of the loans they are seeking to refinance. The borrower’s overall repayment amount may be higher than the loans they are refinancing even if their monthly payments are lower.
2.57% – 5.87%Undergrad
& Graduate
Visit Earnest
2.80% – 6.38%1Undergrad
& Graduate
Visit Laurel Road
2.48% – 7.52%2Undergrad
& Graduate
Visit SoFi
2.47% – 7.99%Undergrad
& Graduate
Visit Lendkey
2.57% – 6.65%3Undergrad
& Graduate
Visit CommonBond
2.72% – 8.17%4Undergrad
& Graduate
Visit Citizens
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.