How to Determine the Amount of Money to Save Every Month as a Family

Saving money each month is a critical step in building a stable financial future, yet it can often feel overwhelming for families, especially when juggling day-to-day expenses, long-term goals, and unexpected costs. How can you possibly save money every month when there’s a list of things to pay for? What’s the best way to figure out exactly how much should go into savings each month? These are common questions that many families face, but the good news is, with a little planning, determination, and review, it is entirely possible to determine a reasonable savings amount.

In this comprehensive guide, we’ll walk you through everything you need to know to determine the right amount of money to save each month for your family. We’ll explore how to evaluate your finances, set realistic savings goals, follow an efficient budget, and make sure you stick to your plan consistently.

---

1. Assess Your Total Household Income

The first and most crucial step is to assess your household’s total monthly income. Before diving into how much to save, you need a clear understanding of how much money is coming into the household each month.

For a family, the total income may come from one or more sources, such as:

• Primary Income: This could be the salary or wages of the main earner in the family. If there is more than one earner, consider adding up all the household incomes to get a full picture.

• Secondary Income: Some families have additional sources of income such as side jobs, freelance work, rental income, dividends from investments, or alimony.

• Other Incomes: Include any other financial inflows like government benefits, child support, or other irregular income that can help stabilize your finances.

Once you’ve calculated all sources of income, it’s important to know your net income, which is the total income after taxes and deductions. This gives you a clear picture of how much money is actually available for your monthly expenses and savings.

---

2. Track Your Expenses Thoroughly

Now that you know how much you’re earning, the next step is to track your expenses. Understanding your expenses is vital because it allows you to identify where your money is going, and helps you figure out areas where you can cut back to free up more money for savings.

How to Track Your Expenses:

• Fixed Expenses: These are regular monthly payments that don't change, such as rent or mortgage, utilities, health insurance, transportation costs (gas, car payment), and loan repayments.

• Variable Expenses: These include groceries, gas for the car, medical expenses, and anything that fluctuates from month to month.

• Discretionary Spending: These are non-essential items like dining out, entertainment, vacations, and hobbies. These expenses are often the first area you can adjust if you need to save more money.

To track your expenses effectively, use a budgeting tool, spreadsheet, or app that helps you categorize each expense. The goal is to see a clear breakdown of what you're spending in each category, which will help you understand how much money you’re left with to save.

---

3. Set Financial Priorities and Goals

Once you have a firm grasp on your income and expenses, it’s time to set your savings goals. Establishing clear goals will help you focus your efforts and determine exactly how much to save.

Short-Term Goals:

Short-term financial goals typically have a timeline of one to three years and focus on immediate needs. Examples of short-term goals might include:

• Building an Emergency Fund: Most financial experts recommend saving 3 to 6 months of living expenses. This money acts as a safety net for emergencies such as job loss, medical emergencies, or home repairs.

• Paying Off Debt: If you have high-interest debts like credit cards, it’s a good idea to prioritize paying them off.

• Saving for a Vacation or Special Purchase: You might also want to set aside money for a vacation or significant purchases like a new car, appliances, or electronics.

Long-Term Goals:

Long-term goals extend beyond three years and focus on wealth-building or long-term security. Common long-term goals include:

• Retirement Savings: Contributing regularly to retirement funds like a 401(k), IRA, or pension plan is crucial for long-term financial security.

• Saving for College Education: If you have children, saving for their future college expenses can be an essential long-term goal.

• Home Ownership: If you don’t already own a home, saving for a down payment or paying off your mortgage is likely a long-term goal.

Setting both short-term and long-term goals allows you to structure your savings in a way that balances immediate needs with future aspirations.

---

4. Follow a Budgeting Method to Allocate Funds

Once you have a clear picture of your goals, the next step is to allocate funds for savings. One popular approach is using the 50/30/20 rule, a simple guideline for budgeting that can help balance spending and saving effectively:

• 50% for Needs: These are essential expenses like rent, utilities, groceries, and healthcare.

• 30% for Wants: Non-essential spending like dining out, hobbies, vacations, or entertainment.

• 20% for Savings and Debt Repayment: This portion is dedicated to building savings and paying off debts.

For instance, if your family earns $4,000 per month after taxes, you should aim to allocate $800 for savings (20% of income). You can break this down further to decide how much of the savings should go toward short-term goals (e.g., building an emergency fund) versus long-term goals (e.g., retirement or college savings).

---

5. Automate Your Savings

One of the easiest ways to stay on track with your savings goals is to automate your contributions. Setting up automatic transfers from your checking account to your savings account ensures that you save consistently without the temptation to spend the money elsewhere.

You can set up automatic savings withdrawals in several ways:

• Direct Deposit: Have a portion of your paycheck automatically deposited into a separate savings account.

• Bank Transfers: Set up monthly transfers from your checking account to your savings account right after payday.

• Employer Retirement Contributions: If you’re contributing to a 401(k) or another retirement plan, make sure that the contributions are automated and consistent.

By automating your savings, you reduce the risk of spending the money that’s meant for your future, and it becomes a non-negotiable part of your financial routine.

---

6. Build Multiple Savings Funds

Rather than having just one generic savings fund, it's a smart idea to break down your savings into different goals or categories. This method allows you to better track your progress and ensure you're not dipping into savings meant for emergencies or long-term goals.

Some common funds you might want to create include:

• Emergency Fund: A separate savings account dedicated solely to emergencies.

• Retirement Fund: Contribute regularly to retirement accounts like 401(k)s or IRAs to build wealth for the future.

• College Fund: Open a dedicated account for your children’s education to ensure you have enough saved when the time comes.

• Goal-Specific Funds: These might include savings for a vacation, home repairs, or a new car.

By clearly separating your funds, you can better prioritize how your money is being saved and avoid spending on the wrong things.

---

7. Review and Adjust Regularly

Financial circumstances are always changing, so it’s important to review your savings plan every 3 to 6 months to ensure that you’re staying on track. Look at your income, expenses, and progress toward your savings goals. If you’ve had an increase in income, or if you’ve reduced your monthly expenses, consider increasing your savings rate.

On the flip side, if you encounter unexpected expenses or face financial hardship, you may need to adjust your savings temporarily. Being flexible and reviewing your savings plan regularly helps ensure that you’re always prepared for changes in your financial situation.

---

8. Start Small and Build Over Time

It’s important to remember that saving money is a marathon, not a sprint. Don’t feel discouraged if you can’t save a large amount right away. Start small and build gradually. Even saving 5-10% of your income can add up over time.

As your income increases or your expenses decrease, you can gradually increase the amount you save. The key is consistency. The more consistently you save, even in small amounts, the more financial security you’ll build over time.

---

Conclusion

Determining how much to save every month is not a one-size-fits-all solution. It depends on your income, expenses, financial goals, and priorities. By assessing your income and expenses, setting clear financial goals, and following a budgeting method like the 50/30/20 rule, you can start saving in a way that makes sense for your family.

Remember, the most important aspect of saving is consistency. Whether you’re saving for an emergency fund, retirement, or a dream vacation, setting a realistic amount to save and automating your savings can help you stay on track. By regularly reviewing your goals and adjusting your savings plan as necessary, you can build a solid financial future for your family.