How much to save from each paycheque.
Pick a goal, a date, and how often you're paid. You'll get the amount to move to savings every payday to get there on time.
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Save on payday, not at month end
Whatever is left at the end of the month is usually less than you planned. Moving the amount on payday flips that.
Paying yourself first works because it takes the decision out of the busy part of the month. The goal gets funded while the paycheque is still whole, and the rest of your spending fits around what remains. Many banks let you schedule an automatic transfer for the day after payday, which makes it close to effortless.
Paycheques in a year
| Paid | Paydays a year | $5,000 goal, per payday |
|---|---|---|
| Weekly | 52 | $96.15 |
| Every 2 weeks | 26 | $192.31 |
| Twice a month | 24 | $208.33 |
| Monthly | 12 | $416.67 |
Paid every two weeks? Twice a year you get a third paycheque in the same month. If your monthly budget is built on two, those extra paydays can go straight to a goal. Over a year that's roughly a month of pay you never had to plan around.
Where to keep it
- Short goals like a trip or a car repair fit a high-interest savings account, where the money stays easy to reach.
- An emergency fund can live in a savings account or a TFSA. Withdrawals from a TFSA are tax-free, and the room comes back the next year.
- A first home belongs in an FHSA if you qualify. The FHSA calculator shows your room.
- Retirement depends on your tax rate. The TFSA vs RRSP calculator compares them.
Questions
How much should I save from each paycheque?
A common starting point is 10% to 20% of take-home pay, but a specific goal gives you a better number. Divide what you still need by the number of paydays before your deadline, and that is your per-paycheque amount. The calculator does that, with interest if you like.
How many paycheques are there in a year?
Weekly pay gives you 52 paycheques, every two weeks gives 26, twice a month gives 24, and monthly gives 12. With biweekly pay, two months each year have three paydays instead of two.
What should I do with a third paycheque?
If you budget each month around two paycheques, the third one arrives with nothing already depending on it. Sending most or all of it to a savings goal is one of the least painful ways to get ahead.
Should I include interest?
If the money sits in a high-interest savings account, a TFSA, or an FHSA, interest will do a little of the work. For short goals the effect is small, so leaving it at zero gives you a slightly cautious number.
How big should an emergency fund be?
Three to six months of essential expenses is the usual guideline. If your income is irregular or you are the only earner in the household, leaning toward the higher end is sensible. Starting with one month is still worth doing.
Now give that amount a job every payday.
A number on a calculator is a wish. In CalmDollar it becomes a savings goal with a target date, funded from every paycheque, with a pace line that shows whether you're on track. Free to start, in Canadian dollars.
