For many people, saving money isn’t a top priority.
Last week I was looking at my budget spreadsheet and noticed our savings rate. Hard to believe, but we were at 83% — meaning 83% of our take-home pay was going to savings and debt payments instead of everyday expenses.
How much of your income should you save each month? Probably not 83%, but there’s a solid target you can aim for.
Start by adding up all the money you actually take home each month. That’s your base. For this example, let’s say the Smiths bring home $8,000 a month after taxes ($96,000 a year). Include paychecks after tax and any side income — rentals, freelancing, pet-sitting, whatever it is. Side gigs are great, as long as they don’t pull you away from family and friends.
Say Mrs. Smith runs an Airbnb in the loft over the garage that nets $500 a month after mortgage and upkeep. Don’t forget to count mortgage principal payments too — that’s building equity. Let’s assume the Smiths pay $300 of principal each month. Finally, add retirement and tax-advantaged savings: 401(k), IRA, HSA, 529, etc. If they contribute enough to get the company match and Mr. Smith maxes his HSA, that’s another $2,000 a month.
So their total monthly saved or incoming money is $10,800 ($8,000 + $500 + $300 + $2,000). Simple so far. Imagine if you had multiple rentals paying down principal and producing income — that adds up fast.
Next, total your monthly expenses: mortgage, childcare, groceries, utilities, car payments, insurance, travel, maintenance, and so on. If you don’t track this already, start now. A family of four can easily spend $5,000 or more a month. In this example, I’m using $500 for after-school childcare; full-time daycare can be $2,000+ depending on kids and location.
Now the math: (Total incoming $10,800 – Expenses $5,000) / $10,800 = 0.537, or a 54% savings rate. Not bad at all.
If the Smiths keep that up, they could potentially retire around 40–45, assuming both worked from age 22. You’ve probably seen the famous FIRE chart — it makes you do a double take if you’re new to aggressive saving. It’s motivating whether you’re fresh out of college or been in the office for 20 years.
Our Smith example is ambitious. You might wonder how they ever reached an 83% savings rate. Here’s an important point: being able to retire early is not the same as deciding to retire early. Just knowing you could leave a job without financial fear gives you confidence. That confidence can help you push for raises, promotions, or new opportunities — which boosts income and your savings rate.
The same goes for rental properties: landlords improve as they go. Fixing a leaky sink, finding good tenants — those wins build confidence. Your goal should be to grow your income base, not live like a hermit. Get paid more at your day job, and grow your side income.
Yes, some expenses will tank your savings rate. If you’re not saving at least 25% of take-home pay and you can do more, it’s time to take a hard look.
It’s really simple: work to earn more while building passive income, and keep a tight rein on expenses. That’s the formula.
For us, getting to 83% took years. Before 2014 we were around 20%. By cutting expenses and growing our careers and businesses, we climbed to 50%, then 60%, then 70%, and now over 80%.
Don’t get hung up on total dollars — focus on the rate. If you make $30,000 a year, saving 50% is harder, but 25–35% can be realistic if you keep costs low. I hit 15% in a good year early on, with 8% going to a 401(k) and the rest to student loans. Keep learning and improving your skills; better jobs and pay will follow. For people near six figures, saving 50% of take-home is doable. For two high-earning partners, 80% becomes realistic. In our case it took decades of work, my wife growing her practice, and building our real estate business — it wasn’t from blog income.
Bottom line: save as much as you can, and invest in yourself and your income base. There are lots of examples of high savings rates on incomes under six figures.
Many Americans earn decent pay but spend like they don’t. Big purchases and vacations add up, and sometimes families face real costs like medical or special-needs care.
Control what you can. If you have two car payments, drop to one and bike or walk when you can. Move closer to work or family who can help with childcare if that makes sense. Cut cable, trim your cell plan, choose a road trip over an expensive flight, and cook at home more often.
If you’re drowning in debt, it’s hard to save. But at least contribute enough to get any employer 401(k) match — that’s free money. Cut up high-interest credit cards and replace shopping with learning. Once debt is under control, occasional spending won’t hurt.
How much to save each month depends on many things, most of which you can influence. Even the most disciplined savers need time for their rate to grow.
One last tip: enjoy the process. Chasing a high savings rate can become all-consuming. Don’t miss out on life. Put relationships first, not fancy cars or countertops, and you’ll do just fine.