It doesn’t matter where you are at in life or your career, saving money is going to be a pivotal component to your financial success.
Learning how you can save money from your salary, save from your weekly check, or even managing a savings from working under the table can set you up for some easier financial decisions later in life. Depending on your goals you can be saving to buy a house, secure auto financing, or simply to plan for retirement.
We breakdown the advantages, how much you should be saving, and provide steps to meet your monthly savings goals below.
Saving money will be tough until you get organized but is much easier if you have a salary or a weekly paycheck. The key is to establish good budgeting habits and get into a routine.
Advantages of a Salary Income
The advantages of being a salaried employee are:
- Guaranteed Pay Amount
- Generally Higher Pay than Hourly
- Better Benefits, Bonuses, Vacation Time, etc.
The key is to use your salaried position to your advantage when it comes to saving money and investing. A lot of times when you’re salary you get extra benefits and options to put your salary to work making money for you. In some cases it’s the first time you will get exposed to investing and really learn how to get started investing in your retirement.
The biggest benefit for building your savings as a salaried employee is the predictable income. You’re paid a set amount every pay period, usually bi-weekly. This means you have a bit more power over what you do with that money since you know how much you’ll be getting. It helps that most positions that offer salary tend to pay higher as well. If the position is over $36,000 per year, there is a good chance it’s a salary position if you’re hired full-time. There are a lot of high-paying jobs for teens if you know where to look.
In order to take advantage of the above benefits you’ll have to create an effective budget plan and breakdown how much you can truly afford to save. The frequency is less important than the act and we suggest you figure out what’s best for you and how often. The tips below outline several ways to automate saving, identify where you can save, and more to help aid in this decision.
How Much Should You Save Each Month?
This is the golden question everyone wants answered and the answer is – it depends! There are too many factors at play for anyone to give you a direct answer without looking at your finances.
The biggest motivator in how much you should save each month is your goals. If you’re looking to buy a car, a house, or simply just looking to establish healthy financial habits you’ll want to sit down and plan.
Goal Oriented Saving
Let’s say you’re trying to save for a down payment on a car. It’s no secret that a down payment will help you get approved for a car loan. You’re looking at a car at $30,000 and want to get 10% saved for the down payment which would be $3,000 and is a healthy down payment.
The next step is to set a target date for your goal. If you want the new car within 12 months then you’ll need to divide the total dollar amount by the months until goal completion.
$3,000 / 12 = $250 per month
If you’re able to afford $250 per month for a savings then you’ll have the car in 12 months! The key to goal oriented savings is to balance your budget and find ways to lower your expenses in other areas – a key component of healthy financial habits.
Establishing Healthy Saving Habits
The general rule of thumb is to breakdown your spending habits and lean towards a 50/30/20 budget rule. This is where you spend 50% of your income on needs, 30% on wants, and 20% on savings. The needs are meant to be monthly bills like your mortgage, utility bills, groceries, and car payments. The wants are the things you could live without but improve your quality of life and are stuff like Netflix, the newest phone, vacations, and so on. The final 20% is what you should be putting aside into your savings, or at least putting it towards something to improve your financial position. If you don’t want to just put it in a standard account you should consider putting it into a competitive 401(k) plan if your company offers it.
Even if you are paid a smaller salary, you can still use these saving methods.
Steps to Building a Savings
Step 1: Breakdown Your Paycheck
The first thing to do before you even decide on a savings goal is to breakdown your paycheck, find out where all of your money is going, and categorize everything. If you’re fortunate to have direct deposit, you should pull your latest bank statements for the past couple months to really identify what you spend your money on. The goal with this step is to isolate the wants from the needs.
Step 2: Find Money In Your Check
Now that you’ve figured out where your money is going, it’s time to cut some expenses. You should take the categorized expenses from your bank statements and start identifying which of the wants you are able to live without, at least for the time being. Typically the biggest budget eater in the want category is unnecessary spending on groceries, eating out, and drinks! If you’re dining out a lot you should consider dialing it back a bit and turning that money into savings.
Step 3: Clear Your Debts
A big factor in reducing the percentage of your salary or weekly check towards needs is debt. There are several ways to get rid of debt such as the debt snowball method, but we suggest making extra payments, if you can, to pay debt down faster. There are other options like refinancing that you can take to lower your monthly payments. If you’re finding that your debts are taking up a larger portion of your monthly take home cash you should make moves to fixing your debt which will only help with improving or building your credit long term.
Step 4: Earn More Money
This is probably a no-brainer. If you’re finding that you’re breaking even each month and not able to get ahead we suggest finding temporary supplemental income to help get you back on your feet. This can be as simple as doing odd jobs for your friends and family to bring in an extra $100. Whatever you do, make sure you take that extra money and use it to pay down your debts or build your savings.
Step 5: Automate Savings
If your debt is pretty low and you’ve figured out how to balance your budget, you should set up an automated savings plan. There are tons out there, especially if you dive into a high-yield savings account. The key is to not even realize that the money is being taken out and you build your new lifestyle around the check that hits your bank account. You’d be surprised how fast a savings can build up if you stay consistent.
Step 6: Consistency is Key
The key to basically everything finance related is to be consistent. Everything you do for your finances should be for the long-term as there is very little short-term growth anyone can have, even people with a ton of money already. As long as you’re consistent with your savings and investments you will end up having a pretty strong financial future.