How Much Should You Save vs. Invest?

Trying to figure out how much money to save and how much to invest? You’re not alone — it’s a common question. Most of us have limited income and lots of things to pay for, like rent, groceries, and bills. So how do you decide what to do with the extra money you have?

Let’s break it down.

Step 1: Build Your Emergency Fund

Before you start investing, it’s important to save for emergencies. This means having money set aside in case something unexpected happens — like losing your job or needing car repairs.

Try to save three to six months of living expenses. That might sound like a lot, so start small. First aim for $500, then $1,000, then a month of expenses. Keep your emergency savings in a separate savings account — preferably one that earns interest. Setting up automatic transfers on payday is a great way to build your fund without even thinking about it.

Step 2: Start Investing for the Future

Once you have an emergency fund, it’s time to start investing — especially for retirement. The earlier you start the better, because your money has more time to grow.

A good goal is to invest 15% of your income, including any money your job puts in for you (this is called a “match” if you have a 401(k)).

Here’s a simple guide to aim for, based on your age:

• By age 30: Save 1x your yearly income
• By 40: 3x your income
• By 50: 6x your income
• By 60: 8x your income
• By retirement: 10x your income

Don’t worry if you’re not there yet. Start where you are and try to increase your savings a little each year, especially when you get a raise.

Step 3: Save for Your Other Goals

Life isn’t just about emergencies and retirement. You might want to save for things like a vacation, wedding, house or baby. Create separate savings accounts for each goal, and give them fun names like “Italy Trip” or “First House Fund.” This helps you stay motivated and on track.

Step 4: Balance Your Priorities

If you’re not sure what to focus on first, here’s a quick guide:

• No emergency fund? Start there.
• Got a 401(k) with a match? Don’t miss out — contribute enough to get it.
• Have credit card debt? Pay that down fast.
• Big event coming soon? Save what you can after covering the basics.

The Bottom Line

You need both savings and investments. Saving helps with short-term needs. Investing helps you grow your money for the future. Make a plan, stick to it, and adjust when life changes. You’ve got this!