Content of the material
- Why Is It Important to Contribute to Savings Every Month?
- How Much to Save for Every Goal
- 1. For Emergencies
- 4. For a Big Purchase`
- Set Money Aside Each Month
- Family and Friends Savings Tips
- 4. Look for Help
- 3. Adopt a Spending Mantra
- Build your savings muscle
- 6. Tell Yourself You Deserve More
- Separate Accounts and Weekly Budgets
- Saving for Life Goals
- Health Savings Tips
- Lower Your Bills
- 6. Stay Focused on the Long-Term
- What Is the Best Way of Saving Money?
Why Is It Important to Contribute to Savings Every Month?
The earlier you contribute to your retirement savings, the more you’ll have saved up when it’s time to clock out for the last time. It’s also easier to save for retirement when you’re young and have less responsibilities. You want to aim to have a high savings rate, which usually means you’ll either be able to retire earlier or have more money during retirement.
There are many benefits of contributing to savings every month, such as:
- Compounding interest: Compound interest will add significantly to your retirement savings, especially if you start saving early on. Compound interest is the process of earning interest on your original earrings and then continuing to earn interest on top of that.
- Peace of mind: Contributing to your retirement savings each month will also give you peace of mind that you’ll have enough money saved up, especially if you’re planning on early retirement.
Now that you know the why of it, we’ll help you answer “how much of your paycheck should you save?”.
How Much to Save for Every Goal
After putting 20 percent of your income towards savings each month, you may increase your payments to reach bigger financial goals. For instance, if you’re wanting to buy a house in the next year, you may want to save extra to meet that goal.
1. For Emergencies
If your tire blows out or your roof starts leaking, you may need some extra cash to get you back on your feet. Typically, you should have at least three to six times your monthly income stored in your emergency fund. If that seems like a lot, set a smaller goal at $400–1,000 to get you started. Keep in mind, this can fluctuate depending on your lifestyle and goals.
4. For a Big Purchase`
When you’re saving for a big purchase, start by breaking down your savings goals. Sit down and write out your top savings goals and what steps you need to take to reach them. Are you wanting to save for college or buy a new car? Put those goals in motion by creating specific, measurable, attainable, realistic, and time-sensitive (SMART) action plans to get you there.
Set Money Aside Each Month
The best way to stop living from paycheck to paycheck is to have money in the bank. You can do that by taking money out of each paycheck. For your initial emergency fund, you should have the equivalent of one month’s pay in the bank.
Once you're out of debt, you can begin building a larger emergency fund. One good rule of thumb is to save at least three to six months' worth of expenses in an emergency fund. This emergency fund is the key to stop living from paycheck to paycheck in the long term. When you have a year’s worth of expenses in the bank, you feel better equipped for life’s unexpected challenges. Even if you start with just $50 per paycheck, you will start to feel more confident about managing your finances.
Just be sure you don’t dip into your savings after you begin setting it aside. If you know that you will be tempted, consider making it harder to do that by opening an online savings account or putting the money in a separate bank. If you know that it will take two or three days (or an extra trip to a bank) to access the money, it can help curtail your impulse purchases. You should also consider putting some money in an account that you can’t touch at all, like a three-month CD.
Family and Friends Savings Tips
27. Create a family spending limit on gifts. Discuss placing spending limits on gifts within your family and/or a system where you only purchase one gift for one person over the holidays. Not only will it relieve financial stress for your family, but it allows you to focus on what really matters during special occasions and holidays.
28. Plan gift-giving well in advance. To go alongside spending limits, give yourself time! You’ll ensure that you’re giving the most thoughtful gifts, which usually end up being not as expensive. Besides, it will also give you the opportunity to look for sales.
29. It’s never too soon to start saving for college. The last thing kids need is more “stuff.” Consider asking for donations to the college fund if you have enough clothes, toys, and other needs for your little ones.
30. Don’t buy cheap clothes for cheap’s sake. There are times where it makes most sense to prioritize quality over price when purchasing clothes for the family. An inexpensive shirt or coat is a poor bargain for older family members if it wears out in less than a year, but could make sense for quickly growing children.
31. Organize a neighborhood swap meet. Here’s how it works: gather your friends and neighbors with kids around the same age and everyone brings gently used clothing, books, and school supplies, toys, etc., and receives a ticket for each item they bring. Each ticket entitles you to one item from the swap meet. If you contribute six books, you can leave with up to six new-to-you books. If you contribute seven items of clothing, you can leave with up to seven new-to-you items of clothing. All leftover items are donated.
32. Designate one day a week a “no spend day.” Reserve one night a week for free family and friends fun. Cook at home, and plan out free activities such as game night, watching a movie, or going to the park.
4. Look for Help
There are many social support programs designed to help people living paycheck to paycheck. While the country is still coming out of the pandemic, many companies are offering assistance, ranging from moratoriums on late fees to free online resources.
If you feel like you’re falling behind, check your state or local government websites to see what help you can access right away. If you’ve got a lot of debt, consider exploring a debt management plan to help you get your finances on track over time.
If you’re struggling with student loans, you may be able to refinance or apply for deferment or forbearance, which can delay your payments for a period. Or, you could try to renegotiate your payment plan with income-based repayment options, which can potentially reduce your monthly payment. Just keep in mind that in some of these scenarios, interest will still accrue, so you likely want to weigh the pros and cons for your situation before making a decision.
3. Adopt a Spending Mantra
It turns out mantras aren’t just for yogis anymore. A recent report by behavioral economist Dr. Hersh Shefrin shows that creating a financial rule of thumb to guide your spending decisions can actually help make you a better money manager.
While scientists call them “heuristics,” not mantras, they work specifically because adopting a personal belief we want to live by—even if we invent it ourselves—makes us feel guilty if we don’t abide by it.
So, how you do you go about adopting a mantra? Think about one spending habit you’d really like to change: Maybe it’s the $50 you spend on work lunches each week. Maybe it’s the fact that you can’t seem to get out from under your debt. Then create a mantra designed to combat it, such as, “I only splurge on entertainment after I’ve paid my credit card bill in full.” Better yet, write it down and pin it to your bulletin board, or snap a pic and make it the background on your phone.
Build your savings muscle
What you do today and where you put the money from your salary will determine if you have options. Options can give you freedom. No amount is too small as long as you start.
Think about it this way, when you start an exercise routine you may not start off with 100 sit-ups, perhaps you start with 30 or even 10. The strength and improvement come from doing the exercise consistently. Each time you exercise it becomes a bit easier. Slowly you add a few more sit-ups and you’ll see improvement.
Exercising and saving money are very similar. You may not see instant or drastic results, but slow and consistent actions will lead to an improvement in your physical or financial health.
6. Tell Yourself You Deserve More
Ever told yourself “I deserve it” when agonizing over the price of takeout after a long day, or trying to justify a new outfit after crushing a presentation at work? We’ve all been there—treating ourselves at the expense of our financial health.
But that’s the old you. Instead of deserving every gadget, weekend getaway, and expensive spa treatment that crosses your path, the new you knows that you deserve more. You deserve to be safe if you lose your job, free of bad debt, and saving for something big that will truly make you happy. The next time you’re tempted to spend, ask yourself: Do you deserve this $40 candle, $25 dinner, $150 pair of sneakers, or do you deserve more? Once you start asking, you’ll be surprised how often you choose to invest in your future instead.
Separate Accounts and Weekly Budgets
One way to save money on a weekly paycheck is to transfer the money you need to keep off limits into a separate checking or savings account. Calling the account “Bills” or something distinctive is a good way to remind you not to touch that money until the respective bill is due. When using Current, you can automatically save money into different Savings Pods using scheduled deposits and use round-ups every time you swipe to automatically allocate funds for specific purchases. This money is then set aside, but can be instantly unlocked when it is ready to use.
Current also offers money management tools that can help you manage your expenses, including options to create individual monthly budgets for specific spending categories and insights into how much you spend in a month vs how much you earn.
As with any kind of financial planning, writing out an ongoing weekly budget is a key step in saving money. Since you’re paid by the week, make a new budget every week. It might seem like a time-consuming chore, but the more you do it, the quicker it becomes and the better you become at thinking about how to plan your finances.
While these steps will help you to save money on a weekly paycheck, things sometimes happen, and you may find yourself in a position where you don’t have enough money to cover all your bills. Perhaps you’ve made your budget, looked at it from every angle, and you find that you still have too many bills or expenses. If increasing your income is not an option, you should look at ways to cut things out of your budget. Every month, look through each of your bills and ask yourself some hard questions, like whether you can cancel a particular subscription or service, or whether you can talk to a vendor about a different arrangement.
Saving for Life Goals
Most of us are likely to have more than one savings goal at any given time, and a limited amount of money to divide among them. If you find yourself saving for your retirement and a child’s college at the same time, one option to consider is a Roth IRA.
Unlike traditional IRAs, Roth IRAs let you withdraw your contributions (but not any earnings on them) at any time. You may have to pay a penalty for early withdrawals, so be sure to do your research if you're under 59.
This means you can use a Roth IRA to save for retirement, and if you come up short when the college bills arrive, tap into the account to pay them. The downside, of course, is that you’ll have that much less money saved for retirement when you may need it all the more.
For 2021 and 2022, the maximum allowable IRA contribution (for traditional and Roth IRAs combined) is $6,000 if you’re under 50 or $7,000 if you’re 50 and up.
Health Savings Tips
38. Don’t skimp on preventive healthcare. Routine dental checkups, for example, help prevent fillings, root canals, and dental crowns – all of which are expensive and no fun.
39. Go generic. Ask your physician if generic prescription drugs are a good option for you. Generic drugs can cost several hundred dollars less to purchase annually than brand-name drugs. And since physicians often don’t know the costs you incur for a particular drug, you often have to ask.
40. Comparison shop for prescription drugs. Don’t just rely on the closest drugstore because the cost to you can vary significantly from pharmacy to pharmacy. Make sure to check out your local pharmacist, supermarkets, wholesale clubs, and mail-order pharmacies.
41. Purchase store brand over-the-counter medications. Store brand medications often cost 20-40 percent less than nationally advertised brands, but are the exact same formula.
Lower Your Bills
In addition to insurance premiums, there likely are other monthly bills you can cut so you’ll have more cash to stash in savings. Financial coach Rocky Lalvani recommends pinpointing expenses such as Netflix, cable TV, phone service or a gym membership fee, and asking yourself whether you’re using each of these services. “If not, get rid of it,” he said.
Then, look for ways to lower the cost of services you do rely on and other bills you must pay. For example, if you’re a responsible credit card holder, call your card issuer to see if it will lower your interest rate. You might be able to reduce a monthly federal student loan payment by qualifying for an income-based repayment plan. Opt for a lower data plan to cut the cost of wireless service, or consider these ways to cut your monthly bills.
6. Stay Focused on the Long-Term
Learning how to save money when you live paycheck to paycheck can be a process. It takes time and effort. Give yourself some grace and keep your eyes on the long-term prize.
As you develop a plan, watch your budget and stay focused — seeing yourself make progress toward building up savings can be incredibly encouraging and motivating. It’s not always quick and easy, and there will be ups and downs, but sticking to your plan and seeing your savings add up over time can make a real difference to your financial health.
If you think you could use a guiding hand in creating a plan to move past living paycheck to paycheck, you may want to consult with a financial representative. These knowledgeable professionals can provide individualized insight and help you chart your progress toward personal goals.
What Is the Best Way of Saving Money?
You need discipline and a plan in order to save money. Know what your goals are and how much you need to set aside. Take advantage of the options available to you, whether that's an employer-sponsored retirement account or an IRA. Make sure you have assets that can be easily liquidated when you need money during emergencies. And be sure to consult a financial professional to help point you in the right direction.