How much should I be saving each month?
You've heard it many times: a penny saved is a penny earned.
What may be less clear is just how much of your hard earned money should be saved. After all, you've got bills to pay, groceries to buy, and debts to repay. But all those needs and wants shouldn't come at the expense of your long-term goals — like retirement or buying a home.
So, how much is a good amount to save every month? Is your current level of saving enough? The answer may depend on your goals, income and lifestyle. Let's take a look.
Start with your savings goals
It's hard to think about your long-term goals, when all those short-term necessities are right in front of you today. But, with a little planning, you can still begin to fund those goals.
In order to decide how much to put away every month, start by identifying what those medium-term and long-term financial goals look like. Here are a few common ones.
Peace of mind: The 2022 FP Canada Financial Stress Index found that, yet again, money is the top source of stress for Canadians — easily topping other causes of stress, such as health, career and relationships. Knowing that you have enough money to pay the bills will surely help you sleep better at night. That kind of peace of mind is nearly priceless.
Major life events: Major milestones and events — whether planned or not — can have a major impact on your personal finances. Getting married, having children and buying a home all involve spending a lot of money. Make your future self happy by saving for these big events as early as possible.
Your child's education: By starting to save early, maybe even before kids enter the picture, you can set up your children for a bright future. The more money saved, the less you'll need to rely on debt to fund their education.
Retirement: We'll dive deeper into retirement planning in a later section, but saving for the future helps give you financial independence — and that includes retiring on your own terms.
Knowing why you're saving money won't just help motivate you, it will also provide a blueprint for how much you need to save to reach those goals.
Budgeting to win
“Don't save what is left after spending; spend what is left after saving," Warren Buffett once said.
Saving money doesn't happen by accident. A successful savings plan begins with a budget. Unsurprisingly, people that stick to their budget achieve significantly better financial outcomes.
There are many budgeting tools and apps available to help you create and follow a budget. The idea is to review all the money you spend on essentials like groceries and transportation, and compare them against your income.
The first step is distinguishing between wants and needs — do you really need that second TV streaming service? Then, you decide just how much of your budget should go towards those daily expenses.
Depending on what your goals are, you can allocate percentages of your after-tax income into needs, wants and savings.
Needs
These are the living expenses you need to survive, and typically take up the majority of people's budget, regardless of their income. Needs include food, clothing, housing, utilities and debt payment.
Wants
If it falls outside those basic necessities, it's likely in the wants category. Wants aren't limited to your morning coffee shop purchase, but include expenses related to entertainment, subscriptions, restaurants and even travel — as much as it may feel like a need.
Savings
This category typically includes debt payments that are beyond the minimum payment or contributions to a savings account.
Saving for a rainy day
If you don't have specific savings goals, you can at least commit to saving for a rainy day.
The most common rule of thumb recommends an emergency savings account holding three to six months' worth of expenses. But that's a big range — so how do you really know how much to pack into that account? There are several factors.
Having three months' worth of expenses, easily accessible, might be enough if you have a stable job, a partner or family members you can rely on financially or don't have too much existing debt.
On the other hand, you might be better off with six months' worth of expenses if you live in a high-cost-of-living area, own a home or have children or other dependents. Check all these boxes? You might want more than six months' worth of expenses on hand.
Building your emergency fund isn't much different than other savings goals. Start with a target: based on the factors listed above, determine how many months of expenses to save. Then, calculate one month's worth of expenses. These would be your needs, such as rent, groceries and transportation — anything you have to continue paying, even in an emergency.
For example, if your monthly emergency expenses add up to $3,500, your goal for a three month rainy day fund would be $10,500; for six months of emergency savings, you'd need $21,000.
Here's what the average household spends every month in each province, and what that would mean for a rainy day fund.
| Average monthly spending | Three months emergency fund | Six months emergency fund | |
| Newfoundland and Labrador | $4,897 | $14,691 | $29,382 |
| Prince Edward Island | $4,722 | $14,166 | $28,332 |
| Nova Scotia | $4,980 | $14,940 | $29,880 |
| New Brunswick | $4,849 | $14,547 | $29,094 |
| Quebec | $4,851 | $14,553 | $29,106 |
| Ontario | $5,990 | $17,970 | $35,940 |
| Manitoba | $5,441 | $16,323 | $32,646 |
| Saskatchewan | $5,944 | $17,832 | $35,664 |
| Alberta | $6,645 | $19,935 | $39,870 |
| British Columbia | $6,459 | $19,377 | $38,754 |
Paying the older you
Planning for retirement is the ultimate long-term savings goal. But don't let that intimidate you.
Whether you have a specific retirement dream, or you just want to retire on your own terms, it's important to start saving early so the older you doesn't have to worry about money.
But how much saving is actually enough?
The 15% rule
Unfortunately, there's no secret formula. Just how much you need to retire depends on your unique situation, age and financial goals. Having said that, the most common recommendation is to save 15% of your pre-tax income each month — including any matching contributions from your employer — starting as soon as possible.
Where does that number come from? Some financial planners suggest you need approximately 70%–80% of your preretirement income in order to maintain a similar lifestyle after you retire. Though most people assume they'll have have fewer expenses in retirement, that's not the case for everyone. Travel and healthcare costs could rise substantially over different periods of retirement.
If you currently make $100,000 a year, you'll want to ensure you have about $70,000 per year saved for your retirement years. That means, if you want to retire at 65 with 25 years of funds in reserve, you'd need more than $1.7 million in your retirement account.
That takes us back to the 15%. If you can save between 10-15% of your pre-tax income from age 25 to 65, you should have enough income to maintain your lifestyle for 25 years of retirement.
Successful retirement planning takes advantage of compounding returns — that means that the key is starting early. A 25-year-old has a much longer time horizon to grow their nest egg, while those more towards the middle of their career may need a more robust savings strategy.
Savings by age
Understanding your time horizon is one of the most important parts of retirement planning. If you find it challenging to save 15% of your income, try instead to break down your savings goals by your age.
You may want to aim to save the equivalent of one year's salary by age 30, with the numbers increasing exponentially from there.
| Age | Savings goal |
| 30 | 1 year's salary saved |
| 40 | 3 times your annual salary saved |
| 50 | 6 times your annual salary saved |
| 60 | 8 times your annual salary saved |
| 67 | 10 times your annual salary saved |
Consider that these amounts may not include other potential sources of income to help you reach that target of 70% of your preretirement income, such as other investment accounts and employer or government pensions.
Where should I keep my savings?
Has all this talk of saving made you eager to start contributing?
Hopefully you know that there are better places to keep your cash than in a chequing account, but deciding where to stash all that money largely depends on your savings goals.
High interest savings account
A high interest savings account is a good place to park your money because it offers a higher interest rate than a regular savings account. These accounts are generally safe and accessible, making them a great place for your short-term savings and emergency fund.
Guaranteed Investment (GIC)
A GIC is a type of investment that pays you a guaranteed interest rate. Your money is locked in for a set term — typically, anywhere from 30 days to five years. Generally, the longer the term, the higher the interest rate. While GICs may offer lower returns compared, historically, to the stock market, they also come with lower risk.
Retirement Savings Plan (RSP)
For long-term financial planning, RSPs offer some great advantages, including a reduction in your taxable income when you contribute, and deferred tax payments on growth in the account until you withdraw, usually upon retirement.
Tax-Free Savings Account (TFSA)
A TFSA earns money tax free. It can be a savings account, but can also hold investments like mutual funds, bonds and stocks. And you can withdraw anytime without paying tax. (just make sure you stay within your limits)
What if I just can't save that much?
You've started with a goal — now comes the hard part.
Sometimes everyday living expenses get in the way of your savings goals. But don't get discouraged if you've started saving later in life or can't save 15% from every paycheque.
Here are a few strategies to help you reach your savings goals.
Start small
If you can't save 10-15%, then start smaller. Even saving 5% from every paycheque can make a big impact over time. Then, once you're in a better spot financially, try to increase your saving rate until you can reach 15%.
Pay yourself first
Think of contributing to your savings account as another one of your bills. As soon as you get your paycheque, immediately divert a percentage towards your savings before you spend it elsewhere. You can even have your bank set aside regular amounts of money automatically — just set it and forget it.
Pay off debt
As important as it is to build your savings, don't forget about your debts. Credit card debt or mortgages won't go away just because you retire — instead those debts may increase the amount you need to save for retirement. Besides, once you're debt free, you can continue making those big monthly payments to your savings instead.
Diversify your income
The quickest way to more savings is with more income. Some people even create passive income streams in retirement or continue to do part-time work to supplement their savings.
Consider where you'll live
If you live in a major urban centre with a higher cost of living, you'll need to save more to reach your goals. If you plan to downsize in retirement, your home maintenance costs and utility bills can be a fraction of what they are now.
Discover new money management tools
Managing your money can be tricky, especially during record-inflation and economic uncertainty. To make life easier, search money management tools to help you budget, track, save and more.
With Tangerine's money management tools, you can customize your financial goals, track your spending, add an Automatic Savings Program to your savings account and much more. And with the Savings Calculator, you can even see how much your savings can add up over time.
Remember, you're never too young or too old to save for the future.
