Yes, saving $500 a month is good! It amounts to $6,000 a year and if this amount is invested properly, it will grow into a very large portfolio over time.
Of course, there are a few other elements worth considering when saving $500 a month. I’ll take you through what you need to know below.
How Quickly Will $500 a Month Grow?
As I mentioned above, saving $500 a month – equivalent to $6,000 a year – can grow to a big portfolio very quickly. If you’re interested in checking how much that adds up to over time, try out the portfolio calculator below.
If you want something a bit more sophisticated and want to see when you can become financially free, check out the COAST FIRE calculator.
Portfolio Growth Calculator
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There are 4 inputs to this saving $500 a month calculator:
- Starting Investment: Enter the current value of your portfolio. If you’re just starting out, then you can default it to $0.
- Monthly Savings: The amount you will commit to your portfolio each month.
- Annual Rate of Return: A safe value to use is somewhere between 6% to 8%. If you are extremely conservative, then you can use 4% to 5%. If you are aggressive, you can try between 8-10%.
- Number of Years: How many years you can contribute the $500 per month.
The calculator shows two charts in the result. The first chart shows your portfolio growth over time when you save $500 (or another amount) a month.
The second shows the same thing, but splits out the components in to your cumulative invested capital (dark blue) and market returns (orange). If you invest for long enough (over 30 years), the market returns will far exceed the total cash you have contributed.
How long will it take me to save $1 million when saving $500 a month?
If you invest $500 per month in the financial markets, your portfolio can grow to $1 million in 35 years if you earn an average 8% per year. If your portfolio generates 6% per year, you can expect to get there in 41 years.
How Much Should I Save Each Month?
It’s great that you’re able to commit to saving $500 each month. However if you haven’t already done so, it’s worth stepping back for a second and asking a few more basic questions: how much should I save each month? Perhaps $500 is too much or it can be too little!
The first step to answer this question is understanding your personal financial goals. Are you saving for a house? Retirement? Emergency fund? Your child’s college education? Or maybe all of these?
The amount you should save every month largely depends on these goals. For example, if you’re saving for a down payment on a house, the required amount may be different compared to saving for retirement.
Your income also plays a crucial role in determining the appropriateness of saving $500 per month. For someone earning $5,000 monthly, saving $500 means setting aside 10% of their income. On the other hand, for a person earning $2,000 per month, saving $500 represents 25% of their income – which is a lot. Therefore, the “goodness” of saving $500 a month can vary considerably based on your income bracket.
Last, but not least, expenses play a significant role in determining how much to save each month. Expenses include the obvious like rent or food, but also things like mandatory debt payments on credit card, student, or car loans. Higher expenses mean you have less money to save. Therefore, it’s important to assess your monthly expenses and work on reducing unnecessary spending. If after meeting all your expenses, you’re able to save $500, that’s definitely a good start.
If your ultimate goal is saving for retirement, try out our retirement calculator to help you plan out your savings needs today, so you can enjoy a comfortable retirement down the line.
Why should I save $500 per month?
Beyond the obvious, having an emergency savings fund is a good idea. Unfortunately, life has a habit of being fairly random in nature, meaning if you need medical care or to take time off work suddenly, it’s worth having a savings pot to fall back on.
You should also start saving for taking time away from work, too. What if you want to take your family on vacation? Having a few thousand dollars in a savings account can ensure you’ll get away somewhere without having to keep counting the pennies.
Do also remember that costs are rising all over the world. Inflation is increasing in many territories, which is why it’s a good idea to have a stock of money to one side so you can overcome spending challenges.
Above all, it’s comforting to know that you have a savings account and money spare to handle much of what life throws at you. Sadly, many of modern life’s challenges need money before you can even start thinking about solving them!
What’s the best way to invest $500 per month?
The best way to build up a huge portfolio with a $500 a month in savings is arguably through investing. However before we get there, it’s first important to look at the full picture.
- Eliminate debt: As boring and repetitive as it sounds, it makes sense to first eliminate your debt – especially high interest rate debt such as credit card debt or other consumer loans like car loans or those buy-now-pay-later type debt.
- Build Up Your Emergency Fund: Again, another piece of unsexy advice, but it’s important to build up your emergency fund with cash savings that has at least 3 months, but preferably 6 months of expenses. You can invest your emergency fund in a high interest savings account or perhaps even put it in a money market fund.
- Invest it: Finally we get to the most fun piece. It’s important to invest your money in a way that aligns with your needs and risk tolerances. Depending on your needs you may choose to go with balanced funds or perhaps go all out with 100% equity funds. It’s important to manage your portfolio prudently, but being overly conservative is not recommended as you will end up sacrificing long-term returns.
If you need help with this, a good way to start would be to educate yourself and to meet with a financial advisor who has fiduciary duty towards you. They will help you decide how to structure your portfolio. Some people have a preference for capital growth whereas others may want dividend income.
If you’re going digital, make sure to choose a trading platform, like M1 Finance that investors and traders recommend.
Before You Go…
The best way to increase your savings is to first increase your income. Whether it’s a side hustle or something that involves a little less work. Want to start making more money to save? Take a look at my guide on the best things to buy and sell for profit.
Our whole blog is dedicated to help you get on the path of financial freedom. Feel free to browse around and read through the articles.
How much will I have if I save $500 a month for 10 years?
If you save and invest $500 a month for 10 years, you’ll end up with anywhere from $72,000 (earning 4% annually) to almost $87,000 (earning 8% annually). Try our savings and portfolio growth calculator for more options.
How much will I have if I invest $500 a month for 15 years?
If you invest $500 a month for 15 years, you’ll end up with anywhere from $139,656 (earning 6% annually) to almost $162,913 (earning 8% annually). From this amount, your total invested cash value is only $90,000. The rest is generated from market returns and/or interest income. Try our savings and portfolio growth calculator for more options.
How much will I have if I invest 500 a month for 20 years?
If you invest $500 a month for 20 years, you’ll end up with anywhere from $220,714 (earning 6% annually) to almost $274,572 (earning 8% annually). From this amount, your total invested cash value is only $120,000. The rest is generated from market returns and/or interest income. Try our savings and portfolio growth calculator for more options.