There's no single correct number. A person paying off high-interest credit cards, someone building their first emergency fund, and someone saving for a house will all answer this differently. What helps is a starting percentage, a clear order of priorities, and a way to make saving automatic.
Start with a percentage
The 50/30/20 rule of thumb suggests splitting take-home pay into roughly 50% for needs, 30% for wants, and 20% for savings and extra debt payments. It was popularized by Senator Elizabeth Warren and Amelia Warren Tyagi in their book All Your Worth.
Twenty percent is a target, not a test. If your rent is high or your income is tight, 20% may not be possible right now. Saving something every paycheck beats saving a larger amount once in a while.
What it looks like per paycheck
Based on net (take-home) pay per biweekly paycheck:
| Take-home per paycheck | 5% | 10% | 15% | 20% |
|---|---|---|---|---|
| $1,200 | $60 | $120 | $180 | $240 |
| $1,600 | $80 | $160 | $240 | $320 |
| $2,000 | $100 | $200 | $300 | $400 |
| $2,500 | $125 | $250 | $375 | $500 |
| $3,000 | $150 | $300 | $450 | $600 |
Over a year of 26 paychecks, saving $160 a paycheck adds up to $4,160 before any interest.
Work backward from a goal
If you're saving for something specific, a target date tells you the amount:
Per paycheck = (goal − already saved) ÷ paychecks until the deadline
Example: You want $3,000 for a car repair fund in 9 months and have $600 saved. Nine months is about 19 or 20 biweekly paychecks. ($3,000 − $600) ÷ 19 ≈ $126 per paycheck.
Find the amount for your goal and deadline.
Open the Savings Goal CalculatorWhere should savings go first?
Many people find this order useful. Adjust it to your situation.
- A starter emergency cushion. Enough to cover a surprise bill without putting it on a credit card. Even $500 to $1,000 helps.
- Any employer retirement match. If your employer matches 401(k) contributions, contributing enough to get the full match means you're not leaving part of your compensation unclaimed.
- High-interest debt. Paying off a credit card charging 20% or more is a guaranteed return equal to that rate.
- A full emergency fund. A common guideline is three to six months of essential expenses, held somewhere safe and easy to reach.
- Longer-term goals. Retirement beyond the match, a home down payment, education, or other goals.
Make it automatic
The most reliable way to save is to never see the money in your checking account:
- Split your direct deposit. Many employers let you send a fixed amount or percentage of each paycheck to a separate savings account.
- Schedule a transfer for payday. Set an automatic transfer from checking to savings on the day your paycheck lands.
- Use payroll retirement contributions. 401(k) and similar contributions come out before you get paid.
Grow the rate over time
If you can't save much now, plan to increase it:
- When you get a raise, save half of the increase.
- When you finish paying off a loan, redirect that payment to savings.
- Every few months, raise your automatic transfer by 1% of pay.
A 3% raise on a $1,600 net paycheck adds about $48. Sending $24 of it to savings is barely noticeable, and the habit compounds.
Common questions
Should I save from gross or net pay?
Most budgeting guidelines, including 50/30/20, use net pay. Retirement contribution percentages are usually set on gross pay.
Is it better to save or pay off debt?
It depends on the interest rate. High-interest debt usually comes first after a small emergency cushion, because the interest you avoid is often more than you'd earn by saving.
Where should I keep my emergency fund?
Somewhere safe and easy to access, such as a federally insured savings account. Investments that can lose value are a poor fit for money you might need next month.