Saving money is key to reaching your financial goals, creating a stable future, and handling unexpected emergencies. But if you struggle to save money from your salary, you’re not alone. 66.2% of Americans feel like they are living paycheck to paycheck, and on average, people save only 3% of their monthly income (Market Watch).
Understanding how to save money from your paycheck can be overwhelming when you have debt, student loans, and other obligations that make it difficult. But don’t worry, we’ve got you covered. We’ll show you how much you should be saving, how to set reasonable goals, and discuss actionable steps to get you started.
How Much Money Should You Save?
Understanding Savings Goals
Determining how much money you should save from your salary depends on your financial goals and circumstances.
For example, saving for a house down payment might require a different strategy than saving for a vacation or an emergency fund.
However, a tried and true strategy is the 50/30/20 rule. This is where 50% of your income goes to necessities, 30% goes to wants, and 20% goes into a savings account.
Accessing Your Financial Situation
While saving 20% may be reasonable for some, it might be challenging for others due to financial obligations.
Assessing your current financial situation can help determine how much money you can save, setting you up for success. Looking at your take-home pay and monthly expenses can help you determine which of the strategies outlined below can get you to the 20% mark.
Proven Strategies to Maximize Your Savings
1. Create A Budget And Stick To It
Budgeting is a tried-and-true method for maximizing your savings every month. It’s effective because it helps you keep track of your finances, prevent overspending, and build healthy financial habits. Creating a budget ensures your money works for you and aligns with your savings goals. Here is how to do it:
Analyze your paychecks and track expenses
Look at your current take-home pay each month after taxes and other expenses. You have to spend this maximum income between living expenses, going out, and savings.
Then, list all your monthly expenses, putting them into a fixed(rent, utilities) or variable (groceries, gas) category. Tools like Mint or YNAB make it easy to track your expenses and categorize them for better clarity. This can help you understand where your money goes and identify any areas where you can cut back. If you want to save money from your salary effectively, tracking every dollar is essential.
Set your financial goals
Based on your income and expenses, set clear and achievable goals. Decide how much you would like to allocate to each category, including how much you want to save.
When setting this budget, consider your priorities and financial objectives. For example, it may be worth cutting back on eating out if it allows you to save hundreds of dollars monthly. Tools like everydollar can help you allocate funds to your specific savings goals.
Organize and track your budgeting
Use your tracked expenses and financial goals to create a realistic budget. You can write it by hand, use a spreadsheet, or a budgeting app. Consider using Pocket Guard and Quicken to help you keep an eye on spending and ensure you stay on track and achieve your financial goals.
Here are the top budgeting apps you should explore: Mint, quicken, ynab, everydollar, pocketguard
2. Minimize Your Expenses
Decreasing your monthly expenses is one quick and efficient way to increase the amount of money you can put toward savings.
Cancel Subscriptions and Memberships
Consider ending any subscriptions or services you aren’t currently using. Many people are surprised to find how many recurring charges they have for services they rarely, if ever, use. The average American wastes $33.84 monthly on unused subscription services – canceling them can be an easy way to save.
Reduce Credit Card Debt
If you have credit cards with high interest rates, consider exploring providers that offer balance transfers with more favorable rates. For example, Capital One, Chase Bank, and Discover promote cards with 0% APR or low interest rates with balance transfers, helping you minimize and manage your monthly credit card expenses.
If you have high-interest credit card debt, you could consider transferring the balance onto a card with lower interest. Look for balance transfer offers with promotional 0% APR periods to save even more.
Refinance existing loans
You can also consider refinancing student or car loans if your interest rate is significantly higher than what’s available now. Depending on your financial goals, refinancing could help lower your monthly payments or shorten your loan term, freeing up more money in your budget.
If you’re a student look into federal or private loan refinancing options. If you have a car loan, explore other auto lenders with more favorable rates for your situation.
3. Increase Your Income
If you have reduced your expenses, increasing your take-home pay can help you closer to the recommended 20% savings. Explore various ways to boost your income.
Request a raise
If you’ve been delivering exceptional results, consider requesting a raise from your employer. This
is a quick way to increase your income without requiring additional hours needed for work.
Freelancing
If you have developed a specialized skill, providing your services through freelancing is one quick way to earn extra income. Set up listings on platforms like Upwork or Fiver, showcase your expertise, and deliver exceptional service.The extra income earned can help you save money from your salary without cutting back on essentials.
Reselling
Reselling personal items that you no longer wear or use is a great way to declutter and make some extra money. The barrier to entry is low, making it accessible for anyone to start. You can resell products that you have purchased in a store through various platforms. There are entire online communities dedicated to this, such as Facebook Marketplace, Depop, and Poshmark, where you can connect with potential buyers. Additionally, there are brick-and-mortar retailers like The RealReal that allow you to consign items, offering a venue to buy and sell gently used name-brand clothes.
4. Automate Your Savings
Once you’ve evaluated your financial situation and created a budget, the next step is to begin saving your hard-earned money to reach your financial goals. If you decide to implement the 50/30/20 strategy above, you’ll be saving 20% of your monthly income. However, if you can’t reach that target due to your circumstances, setting aside any percentage of your income is better than no income.
To make savings easier and more consistent, consider automating the process. Setting up automatic transfers from your checking account to a savings account can ensure you’re saving regularly without having to think about it.
Many banks and financial apps offer features that allow you to schedule these transfers on a weekly, bi-weekly, or monthly basis, so you can align them with your paycheck schedule for added convenience. This way, you can effortlessly save money from your salary and build a strong financial future.
Consider using a savings app
Look for saving apps that round up your daily purchases to the nearest dollar and save or invest the spare change. Some apps help you save small amounts based on your spending habits. These tools can supplement your regular savings efforts with minimal effort.
For example, if you buy a cup of coffee that’s $1.50, an investing app like Acorns will round your bill up to $2.00 and invest that $0.50 into your investment account. Over time, these small investments can quickly grow your savings.
Tailor Savings to Your Financial Goals
Now that you have the tools and knowledge needed to save around 20% of your income each month, it’s important to align your savings with your financial goals.
Setting financial goals will guide your current savings strategy and help determine when adjustments are necessary. Common financial goals include building an emergency fund, saving for retirement, and investing. The key is to select goals that align with your financial motivations and lifestyle preferences, ensuring you can remain disciplined and consistent in working towards them.
Final Thoughts
While saving money from your salary may feel challenging, especially with competing financial obligations, with the right approach, it’s entirely achievable. Evaluating and understanding your financial situation, setting clear savings goals, and utilizing the strategies above can help you start building a solid foundation for your future.
It’s important to align your savings with your personal goals, whether it’s creating an emergency fund, preparing for retirement, or growing your wealth through investments. The key is to be disciplined, and consistent, and adjust your savings strategy when necessary.
With the right strategy in place and the right tools, you’ll be on your way to achieving the financial freedom you’re looking for. Just take the first step today and trust that your future self will thank you.
