Is Saving $1,000 a Month Good?
If you’re starting to save for one or more financial goals or just want to make sure you’re saving enough, you might be asking yourself if saving $1,000 per month is good.
While it is, of course, good to save, a more personal analysis will help you see if it puts you on track to hit your savings targets. The answer depends on many factors, each of which is unique to your situation.
Let’s take a look at what saving $1,000 per month can do for you so that you can decide if it will help you reach your financial goals.
Why Save $1,000 per Month?
First, you need to define your financial goals. Before you can know whether saving $1,000 per month is good, you need to have an idea of why you are saving in the first place.
There are many reasons you may want to do so. Some common examples include:
Emergency Savings
Unplanned expenses can be disastrous if you don’t have enough room in your budget to cover them. Losing income that you rely on can cause you to miss payments on loans or bills. An emergency fund is money that you’ve set aside specifically for the purpose of protecting yourself in these situations. A good rule of thumb is to have six to nine months’ worth of expenses saved for such emergencies.
A Specific Purchase
Do you have a specific purchase planned that you are saving for? This could be a down payment on a house, buying a car, or something related to a hobby of yours.
Retirement
Whether you are just starting out in your career or nearing the point of retirement, you likely should be saving for it. It’s never too early to start planning and saving for retirement, and you may want to retire sooner than you think.
Your Children’s College
Many parents choose to help their children pay for college. If you plan to, saving for it ahead of time will make it much easier whether you decide to pay for all of it or offset a portion of your total bill.
General Savings
Of course, you may simply want to accumulate additional savings in general without any specific goal in mind. Although defining your target more tightly will likely be better for you, having a larger savings balance is better than having a smaller one.
Once you define your goal, you also need to put a number on it. How much do you need to save to reach it? For some things, such as buying a car or saving for a down payment, the answer may be clear and obvious. For others, such as saving for retirement, there are more variables to consider, and the number might be harder to define. In those cases, it may be helpful to think of a range of values that your target is likely to fall within.
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How Long Do You Have to Reach Your Goal?
If you’re going to save $1,000 per month toward your goals, consider how long it will take you to reach them to determine if it’s adequate.
For example, assume you want to save $30,000 to buy a car. It will take you 30 months, or two and a half years, to reach your goal. If that’s suitable given your timeline for purchasing your car, then saving $1,000 per month works. If you plan to or need to buy your car sooner, then you’ll need to think of another strategy.
Can You Afford to Save $1,000 a Month?
Saving is good, of course, and naturally requires some financial sacrifice, but you also need to eat and pay your bills. Can you realistically afford to save $1,000 per month, given your income and expenses? This will look a little different for everyone. $1,000 may go unnoticed to some but could represent a significant portion of monthly income for others.
Consider your total budget and what you might have to cut to save $1,000 per month. Again, saving always means giving up something, but make sure what you’re giving up is realistic. If you aren’t sure, you can always try and then scale back or up as needed until you find something that fits.
If you think you can’t afford to save $1,000 per month but feel like you need to, there are some things you can do to try and free up the money:
- Review your expenses. What can you cut? Are you spending more on food than you have to by eating out very frequently? Do you own a nicer car than you need? Have you signed up for a lot of subscription services that you don’t really use that often?
- Consider your income. Are you maximizing your earnings potential? Is there an opportunity to change jobs or ask for a raise?
- Are debt payments eating up too much of your budget? Is the interest on your debt particularly high? Consider paying down your debt first to free up money to save.
Where to Save $1,000 a Month
There are many ways to save $1,000 per month. You could put it in the proverbial coffee can, but that is almost never the best choice. The best place for you to save money depends largely on the goal you’re saving for.
Checking and Savings Accounts
If you’re saving for a purchase in the near future or might need to access the money quickly, such as for an emergency fund, checking and savings accounts might be a good choice.
CDs and Other Fixed Instruments
For mid-term goals that are a few years away, you might be better off with something that will pay a higher interest rate than a checking and savings account. Bonds and Certificates of deposit with maturities that match your savings timeframe can help you maximize your savings.
Investment Accounts
For long-term savings goals that are 5 or more years away, you may want to consider investing your money in a mix of stocks, bonds, mutual funds, and ETFs that can help your money grow more. These types of investments can be volatile, so be sure to consider how they might fluctuate. This will be more appropriate if you have a longer savings horizon or flexible goals.
What About Saving $1,000 per Month for Retirement?
If you’re saving $1,000 per month for retirement, there are a few specific considerations to be aware of that make it unique:
Retirement Accounts You Can Use to Save $1,000 per Month
Retirement accounts provide tax advantages for retirement savings. Traditional or tax-deferred accounts allow you to deduct the contributions you make. You aren’t taxed on the interest, dividends, or investment gains until you withdraw the money. Roth accounts reverse that tax treatment. You can’t deduct contributions, but qualified withdrawals you take in retirement are entirely tax-free.
The most common retirement accounts are 401ks, 403bs, and IRAs.
401k and 403b accounts have annual contribution limits. For 2024, you can put $23,000 in a 401k or 403b account, plus an additional $7,500 if you’re at least 50. That’s more than enough room for $1,000 per month.
IRAs have smaller limits. For 2024, the limit is $7,000, plus another $1,000 if you’re at least 50.
Employer Matching Contributions
If you are trying to save $1,000 per month, don’t forget your employer likely offers a matching contribution to your workplace retirement plan. Typically, these are calculated as a percentage of the dollars you contribute up to a certain percentage of your salary.
For example, the match might be 100% up to 5% of salary. If you make $50,000 per year, your employer will put $1 into your retirement account for every $1 you put in, up to a maximum of $2,500 (5% of $50,000). Each plan is different, so look at your plan document or ask your benefits administrator if you aren’t sure what your employer offers.
Long-term Compounding
Because retirement is such a long-term goal, the effects of compounding have a major impact on how much you’ll accumulate. That means starting as early as possible and investing for long-term growth can make a huge difference. Here’s how much you might have after saving $1,000 per month for 10, 20, 30, or 40 years and earning 6, 7, 8 or 9% per year for reference:
Long-term Compounding Example for $1,000 Savings per Month
A compound interest calculator can give you a clear idea of how much you can save under different scenarios.
Is Saving $1,000 Every Month Good?
Saving $1,000 is good. Obviously, the longer you do it, the better. However, to know whether saving $1,000 per month is right for you, assess your goals and the timeline you have set for reaching them.
