If you’re saving for a large goal, like a down payment on a house or building a retirement fund, you might wonder if saving $1,000 a month is a good idea.
Below, we’ll break down exactly what saving $1,000 a month means and how it can affect you financially both today and in the future.
Is Saving $1000 Per Month Good?
Any money you save is good, so saving $1,000 a month is great, especially if the money is meant for retirement or another significant goal. Without compounded interest or earnings, your savings equal $12,000 a year.
Of course, if you learn how to invest it, you could make it worth even more money.
Why Is Saving $1,000 a Month Important?
Putting money back into savings every month is essential. If you can save $1,000 or more, you’ll likely reach your financial goals and have a fully stocked emergency fund. Think about how nice it would be to take care of all emergencies without racking up a bunch of debt!
Your savings aren’t limited to emergencies and retirement, though. You can start saving to buy a house or a car, contribute to your children’s college education fund, or even plan a vacation.
How $1,000 a Month Will Grow
So how much will $1,000 a month grow if you consistently invest? It depends on many factors, including the amount you contribute monthly, the annual rate of return, and the timeline or number of years you’ll let the money grow.
For example, if you saved $1,000 a month and invested it in a high-yield savings account for 4% with interest compounded daily and paid monthly, you’d have the following amounts saved with an initial $1,000 balance:
- 1 Year – $13,258.44
- 5 Years – $67,395.68
- 10 Years – $148,176.17
- 20 Years – $366,032.85
- 30 Years – $688.513.96
Factors Affecting Your Savings Growth
The example above is based on the ‘perfect scenario.’ But the following factors can affect how much your savings grow.
- Initial investment – Starting with $1,000 is great, but any amount helps. The more you start with, the more interest you’ll earn initially, and that interest keeps growing as long as you keep it invested.
- Regular contributions amount – The more consistent your contributions are, the more you can earn compound interest.
- RoR – The higher your rate of return, the greater your returns. Standard savings accounts have minimal rates of return, but HYSAs and other investments can offer much higher returns.
- Time horizon – The longer you keep your money invested, the more time the earnings have to grow and compound.
Where to Put Your Savings
The next big question is, where do you put your savings? Like I said above, a traditional savings account pays next to nothing, but there are other options to save your money.
Traditional Bank Account
A traditional bank account is your local bank’s checking or savings account. Brick-and-mortar banks often pay low APYs because they have high overheads. They may also charge monthly maintenance fees, decreasing your earnings.
This doesn’t mean a traditional bank account is bad, though. Here are some pros and cons:
- Convenient to deposit and access your cash
- Easy to get help from a banker in person
- May offer bonuses
- Pays minimal interest
- Often charges a monthly maintenance fee
- May charge other fees, such as ATM, paper statement, or wire fees
High-Yield Savings Account
A high-yield savings account is an account at an online bank. These banks usually don’t have brick-and-mortar locations and pay much higher APYs than traditional banks. Many HYSAs don’t charge monthly maintenance fees, and some include a debit card to access your cash.
Earning more money is great, but HYSAs have pros and cons to consider.
- Pays higher interest rates
- Often compounds interest daily
- Many accounts don’t charge any fees
- Difficult to deposit cash
- Interest rates can change
- You are limited to six withdrawals per month
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Money Market Account
Money market accounts are also bank accounts. They are a cross between checking and savings and often pay higher interest rates than savings accounts. Many money market accounts have specific account minimums, and each bank has different rules regarding deposits and withdrawals.
Most banks include an ATM card with the account to make it easy to access your cash, and some include a checkbook to write checks.
Like HYSAs, money market accounts have pros and cons to consider.
- Offers easy access to your cash if needed, including an ATM card at many banks
- Typically offers high APYs compared to basic bank accounts
- It provides FDIC insurance while also allowing your money to grow
- The number of withdrawals may be limited
- There may be a minimum balance requirement
- Some banks charge excessive fees
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Certificate of Deposit
A Certificate of Deposit is a deposit with a specific timeline. They are often available at brick-and-mortar and online banks. CDs offer higher interest rates than savings accounts because you lock the funds up for a certain period. If you withdraw the funds early, you’ll pay a penalty, so only choose a term you can leave the funds untouched. CD terms often range from 1 month to 10 years.
- CDs typically have higher APYs than standard bank accounts
- You know how much you’ll earn over the term because rates are fixed
- Your money is FDIC insured
- You have limited access to your funds
- Higher returns may be an opportunity cost over the CD’s term
- Your earnings may not be worth as much with inflation
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10 Tips to Save $1,000 a Month
Saving $1,000 a month may seem impossible, but here are ten tips to help you reach your goal.
1. Create Attainable Money Goals
Setting money goals can help motivate you to save money. When cutting expenses or making important financial decisions, your money goals will help you decide which is the best decision. For example, at the moment, an impulse purchase may feel right, but knowing you have those goals hanging over your head can help you make smarter financial decisions.
2. Evaluate and Restructure Your Budget
You probably have room to save in your budget; you just don’t realize it. Revisit your budget and look closely at your expenses. Cut out what you can, and make savings a fixed bill that you must pay monthly.
Restructuring your budget may give you room to reach those goals without too many sacrifices.
3. Categorize Your Wants vs. Needs
The line between wants and needs can blur quickly. Look closely at your expenses and determine if they are a true need that covers housing, basic clothing, healthcare, and food or if they are a want you can live without.
This doesn’t mean you must cut out every ‘want,’ but you might cut back on certain things to help you reach your goals.
4. Minimize Debts
Paying off debt before saving usually makes sense, especially if you have high-interest debt. For example, paying 19% interest on credit card debt to make 4% interest on savings leaves you at a loss.
Create a debt payoff plan and follow it closely so you can restructure your budget and allocate the funds to savings after paying off your debt.
5. Minimize Monthly Expenses
Consider lowering any of your monthly expenses if there is room. Common examples include the following:
- Refinance Mortgage: If you can refinance your mortgage to save money on your monthly payment, allocate the difference to savings. Even with higher interest rates, there are ways to lower your payment and make more room in your budget to save money.
- Insurance: Consider looking for cheaper insurance if you have options. Auto and home insurance are common policies to shop for every couple of years, as most insurance companies gradually increase premiums without most people realizing it.
- Memberships and Subscriptions: Review your bank and credit card statements looking for memberships and subscriptions you pay for but don’t use. You might be surprised at how much you can save with this simple step.
- Cell Phone: Check out other cell phone providers or plans from your current provider to see if you can save money on cell phone costs. Consider eliminating unlimited data or text plans, especially if your usage isn’t near the limit of other plans.
- Cable and Internet: Cable and internet bills can also quickly add up but can be easily switched. New providers usually offer promotions only available to new customers. Did you know that you are a ‘new subscriber’ with most providers after being gone for only a year?
6. Maximize Your Home’s Energy Efficiency
Energy efficiency can save money on monthly utilities and repairs, leaving more money for savings. Consider routine maintenance to seal windows and doors, annual cleaning of your HVAC system, and considering solar panels or other energy-efficient options in the home that might save money on your bills.
7. Automate Savings
Paying yourself first is key, but even with it as a line item in your budget, it’s easy to forget to save. Stop leaving it to chance. Instead, make your savings automatic so that the specified amount of money gets transferred to your account each payday.
8. Participate in a Money Saving Challenge
Accountability can help you reach your money goals. If you’re competitive, join a money-saving challenge for accountability and push to do more. You might surprise yourself and save more money than you thought you could.
9. Bring in Extra Income
If you’ve exhausted all options and still come up short, consider bringing in more income with these options.
- Freelance: Think of the skills you have and offer freelance services. Common examples include web design, writing, proofreading, and video marketing. You can charge what you think is fair and work in your free time to make more money.
- Rent Space: Consider renting if you have unused space inside or outside your home. For example, you could rent a garage space for a renter’s car, a spare room for a tenant, or an attic for storage.
- Drive for Rideshare or Food Delivery Apps: There are many opportunities to make extra money with rideshare and food delivery apps, such as Uber, Uber Eats, DoorDash, or Grubhub. Most apps pay a flat fee to the driver, plus you keep 100% of the tips, and you can work when you want.
- Tutor: There are many opportunities for tutors, both online and in-person. You can charge $50+ an hour and tutor kids in specific subjects or even offer tutoring for special tests, like the SAT or ACT.
- Consult: If you spent a long time in a specific career or have certain skills that allow you to work as a consultant for your industry, you can make money in addition to your regular paid working gigs on the side.
In addition to bank accounts, you may consider other conservative investments such as ETFs or putting your money in a robo-advisor and choosing a conservative portfolio option. To further diversify your funds, consider investing in real estate either physically if you have the capital or through crowdfunding on sites like Fundrise.
Can I make $1 million dollars by saving $1,000 a month?
You can make $1 million by saving $1,000 a month with consistent contributions and returns. With returns of 6% to 8% per year, you can have $1 million within 26 to 31 years.
Can a Financial Advisor Help Me Increase My Monthly Savings?
A financial advisor can help you evaluate your options and choose the best investments to reach your goals. However, no one can guarantee that your earnings will increase, as no one can predict what will happen in the market.
Where Did the $1,000-a-Month Savings Goal Originate?
Wess Moss, a Certified Financial Planner and teacher, came up with the $1,000-a-month savings goal to make it easier for his clients to visualize how much money they should save to be successful in retirement.
What Is the 4% Savings Rule?
The 4% savings rule is similar to the $1,000 a month rule. It states that the average retiree should be able to live on 4% of their retirement savings annually. If they invest in 50% stocks and 50% bonds and start investing for retirement at 21 years old, they shouldn’t worry about outliving their money.