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WalletPrep worksheet · Saving

How much of your paycheck should you save?

Name ____________________ Date __________

Key ideas

  1. Twenty percent of take-home is a common target. It is the savings slice of the 50/30/20 rule and includes extra payments on debt beyond the minimums.
  2. Take the full employer match first. If your employer matches 401(k) contributions, saving enough to get the full match is the best return you will find.
  3. Raise your rate with every raise. Send part of each pay increase to savings before you get used to spending it. One extra percent a year adds up.

Vocabulary

Take-home pay
The money that actually lands in your bank account after taxes and payroll deductions come out of your paycheck.
Savings rate
The share of your income you save instead of spend, written as a percent.
50/30/20 rule
A simple budget that splits take-home pay into 50% for needs, 30% for wants and 20% for savings and extra debt payments.
Employer match
Money your employer adds to your retirement plan when you contribute, up to a set percentage of your pay.
Emergency fund
Cash set aside only for surprises like a job loss, a car repair or a medical bill. A common goal is 3 to 6 months of essential costs.
401(k)
A retirement savings plan offered through an employer. Money comes straight from your paycheck, often with an employer match.

Work it out

Sam is an office manager earning $5,000 a month before taxes, with $3,800 take-home. His employer matches 50 cents on each dollar up to 5% of pay.

  1. 401(k), 5% of $5,000
  2. Employer match
  3. Emergency fund transfer
  4. Saved each month
  5. Share of pay before taxes
  6. Retirement in 30 years at 7%

Check yourself

  1. Your take-home pay is $3,000 a month. What is 20% of it?

    • A. $300
    • B. $450
    • C. $600
    • D. $750

  2. Which usually comes first in the saving order?

    • A. A $1,000 starter emergency fund
    • B. Maxing out an IRA
    • C. Saving for a vacation
    • D. Buying individual stocks

  3. Do extra credit card payments count toward a 20% savings rate?

    • A. No, only bank deposits count
    • B. Only if the card has 0% APR
    • C. Only after retirement
    • D. Yes, payments beyond the minimum count

Your turn

Check your 401(k) contribution and confirm it gets the full employer match. Then schedule one automatic transfer from checking to savings for the day after your next payday, at an amount you won't miss.

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Answer key

How much of your paycheck should you save?

Work it out

  1. 401(k), 5% of $5,000$250
  2. Employer match$125
  3. Emergency fund transfer$380
  4. Saved each month= $755
  5. Share of pay before taxes15.10%
  6. Retirement in 30 years at 7%$457,489
  1. Sam puts in 5% of $5,000 = $250, and his employer adds half, $125. He also sends $380, 10% of take-home, to his emergency fund.
  2. $250 + $125 + $380 = $755 a month. $755 ÷ $5,000 = 15.1% of his pay before taxes.
  3. The $375 a month going to retirement grows to about $457,489 in 30 years, assuming 7% a year before inflation. Returns vary and can be negative.

Check yourself

  1. C. $600 $3,000 × 20% = $600 a month for savings and extra debt payments.
  2. A. A $1,000 starter emergency fund A small starter fund keeps one surprise bill from turning into credit card debt. The employer match and high-interest debt come next.
  3. D. Yes, payments beyond the minimum count In the 50/30/20 rule, the 20% covers savings and extra debt payments. Paying down a high-rate card is one of the best uses of that money.