How Much Should You Save Every Month? A Simple Framework That Actually Works
One of the most common questions in personal finance is also one of the hardest to answer:
How much should I save every month?
You will often hear simple rules such as "save 20% of your income" or "save as much as possible."
These guidelines can be useful starting points, but they don't tell the whole story.
Someone earning RM4,000 per month with significant debt and no emergency savings may need a very different strategy from someone earning RM15,000 with a fully funded emergency fund.
Instead of searching for one perfect percentage, it may be more useful to calculate a savings target based on your own income, expenses, commitments and goals.
This article is for general educational purposes only and does not constitute financial, investment, tax, legal or other professional advice.
What Is a Savings Rate?
A simple way to measure how much of your income you are putting aside is your savings rate.
Savings Rate = Amount Saved ÷ Take-Home Income × 100
For example, if your monthly take-home income is RM8,000 and you save RM1,600:
RM1,600 ÷ RM8,000 × 100 = 20%
Your savings rate would therefore be 20%.
However, the percentage alone does not tell you whether you are financially on track.
Why a Fixed 20% Rule Doesn't Work for Everyone
A percentage-based target can be useful, but personal circumstances matter.
Consider two individuals:
| Person A | Person B | |
|---|---|---|
| Take-home income | RM5,000 | RM10,000 |
| Essential expenses | RM3,800 | RM4,000 |
| Existing debt | High | Low |
| Emergency savings | RM3,000 | RM50,000 |
Both people could theoretically save 20%, but their financial priorities are very different.
Person A may initially need to strengthen financial resilience, while Person B may have considerably more flexibility to allocate money towards long-term goals.
Start With Your Essential Expenses
Before deciding how much to save, understand how much it actually costs to maintain your lifestyle.
Separate your expenses into broad categories such as:
- Housing
- Food
- Utilities
- Transportation
- Insurance
- Healthcare
- Debt repayments
- Other essential expenses
This gives you a clearer picture of how much income is already committed before savings are considered.
Then Look at Your Financial Priorities
Your savings target can then be divided according to different objectives.
For example:
- Emergency savings
- Short-term goals
- Medium-term goals
- Retirement
- Long-term investing
This connects closely with the 3-Bucket Savings Strategy, where money is assigned a purpose rather than simply being labelled "savings."
A Simple Three-Step Calculation
Step 1: Calculate Your Monthly Surplus
Take-Home Income − Essential Expenses − Existing Commitments = Monthly Surplus
For example:
RM8,000 − RM4,500 − RM1,000 = RM2,500
The RM2,500 represents the amount available for additional savings, investing, discretionary spending or other goals.
Step 2: Identify Your Priority
If you have little emergency savings, building financial resilience may be an important priority.
If your emergency fund is already adequate but retirement savings are behind schedule, the allocation may look different.
Step 3: Set a Target You Can Maintain
A savings target that works for three months but becomes impossible to maintain is less useful than a sustainable system.
Consistency can be more important than finding a perfect percentage.
What If You Can't Save 20%?
There is no reason to assume that failing to save 20% means you are financially unsuccessful.
Someone may currently be able to save only 5%.
The next objective could be to reach 7%, then 10%, as income and circumstances change.
Even a relatively small monthly amount can become meaningful when maintained over many years.
What If You Can Save More Than 20%?
The opposite can also be true.
Someone with relatively low fixed expenses may be able to save substantially more than 20%.
Rather than automatically increasing lifestyle spending whenever income rises, additional savings could potentially be directed towards:
- Retirement
- Investments
- Future property goals
- Education
- Other long-term objectives
This is particularly relevant to the concept of lifestyle inflation.
Finance with Alex Case Study
Scenario
Daniel earns RM9,000 per month after deductions.
His essential expenses are approximately RM4,500 and existing debt commitments are RM1,000.
His monthly surplus is therefore:
RM9,000 − RM4,500 − RM1,000 = RM3,500
Rather than automatically treating the entire RM3,500 as disposable income, Daniel could consider how much should be allocated towards:
- Emergency savings
- Short-term goals
- Retirement
- Long-term investments
- Discretionary spending
The important point is that Daniel's savings target is based on his actual financial position rather than an arbitrary percentage.
This scenario is hypothetical and provided solely for educational purposes.
Final Thoughts
There is no universal savings percentage that guarantees financial success.
A better approach may be to start with your income and essential expenses, understand your financial priorities, and then establish a savings target that can realistically be maintained.
The goal isn't simply to save more this month.
It is to build a financial system that allows today's income to support tomorrow's goals.
Disclaimer: This article is for general educational purposes only and should not be considered financial, investment, tax, legal or professional advice.