How To Save Money From Salary
Do you get a paycheck and see it disappear right before your very eyes? You are not alone. Approximately 64% of Americans are living paycheck to paycheck according to a report by LendingClub. For this reason it is increasingly important to find ways to save money from your salary. Let us look at some tips to get you started.
6 Tips To Save Money From Your Salary
- Set savings goals
- Create a budget
- Use direct deposit to split your paycheck
- Lower your living costs
- Try using cash only
- Max out retirement accounts
Tip 1: Set savings goals
In order to save money, you first need to set some savings goals. This will help you stay focused and motivated when it comes time to put your money away. The best way to start is by setting simple, achievable goals. Here are a few tips for creating effective savings goals:
Know how much you need
The first step in creating any savings goal is knowing how much money you need to save. This may take some research on your part, but it is worth it in the end.
Make a plan
Once you know how much money you need to save, make a plan for how you will achieve that goal. This may include setting aside a certain amount of money each month or week, or finding cheaper ways to live.
Saving money can be difficult, especially if it seems like you are not making progress towards your goal. To stay motivated, find a friend or family member who can help keep you accountable, or reward yourself with something nice once you reach your goal!
Tip 2: Create a budget
One of the best ways to save money is by creating and following a budget. A budget will help you track your expenses and figure out where you can cut back on spending. There are many different ways to create a budget, but the best way is to find one that fits your individual needs. Here are a few tips for creating a budget that will help you save money:
Find a system that works for you
The first step is finding a budgeting system that works best for you. There are many different types of budgets, from the 50/30/20 rule to the envelope method. Choose the one that best suits your lifestyle and stick with it!
Track your expenses
Second step in creating a successful budget is tracking your expenses. This means recording every penny you spend each month. This may seem like an unnecessary task, but it is very important if you want to stay on track financially.
What Can I Cut Back On?
You have tracked your expenses, take some time to analyze them. Figure out where you can cut back on spending based on your expenses and budget.
Tip 3: Use direct deposit to split your paycheck
Many employers offer a feature where you can split your direct deposit into multiple bank accounts. This will help you avoid temptation and make it easy to save your money automatically. Bonus points for direct depositing your savings into an account that is difficult to access.
In order to ensure your taxes are paid every year your employer removes taxes from your pay. Using this method works similarly. Before you spend the paycheck the savings portion will be direct deposited into a separate savings account. Out of sight, out of mind.
Alternatively banks do offer automatic bank transfers. You can time a transfer after you expect the direct deposit to land in your account. The only downside here is the temptation. But this does work for many people.
Tip 4: Lower your living costs
There are many different ways to lower your costs and have more money left at the end of the month. One effective way is by cooking at home instead of eating out. This can save you a lot of money, especially if you cook meals that are high in protein and fiber. Additionally, you can save money by choosing cheaper transportation options, like biking or walking instead of driving.
Another great way to save money is by shopping around for the best deals on groceries and household items. Or you can try shopping in bulk. Stores like Costco or BJ's sell items in bulk, which usually end up being cheaper per unit. The only catch is you'll need the space to store the bulkier items. But it's an effective way of lowering your monthly costs.
We could go on and on. Here are a few more:
- If you are single, getting a roommate can help lower the cost of most peoples largest expense - rent.
- Shop on sales. But the key is don't buy more than you would have otherwise bought, or the savings would be erased.
- Buy generic. I've seen price differences up to 40% by doing this.
Tip 5: Try using cash only
Using cash only can be a great way to save money. When you use cash, you are less likely to overspend because you are limited to the amount of money you have. Additionally, by using cash you will avoid the fees associated with using a credit or debit card. This can add up to a lot of money over time! It matters now more than ever because it seems many merchants have begun adding on card fees due to inflation.
If you want to start using cash only to save money, here are a couple of tips:
If you are not used to using cash, start small. Begin by using cash for small purchases, like coffee or lunch. This will help you get used to carrying around and spending money.
Use an envelope system
An effective way to use cash only is by using the envelope system. With this system, you create envelopes for each category of your budget, like groceries, entertainment, and transportation. This will help keep your spending organized and prevent you from overspending.
Tip 6: Max out retirement accounts
Contributing to your retirement account is one of the smartest financial decisions you can make. Not only will it help you save for retirement, but it will also help you reduce your taxable income. Talk about a win-win.
Before deciding how much to contribute to your retirement account, take some time to review your budget and expenses. Figure out what percentage of your income you can comfortably contribute without putting strain on your budget. This may not be the same for everyone, so find the contribution level that works best for you! Try and max out the total you save. For example, in the US the total yearly contribution will be $22,500 for 2023. Not too shabby.
Note that when calculating your savings rate per month your retirement savings counts towards that too. So if you aren't saving as much cash, you are still saving with a retirement account.
Frequently Asked Questions
How Much Should You Be Saving
Saving money is important, but it can be difficult to know how much you should be saving each month. A good rule of thumb is to try and save at least 10-20% of your income each month. This may seem like a lot, but it is important to remember that the more you save, the more comfortable you will be in the future.
If you are just starting out and don’t have a lot of money saved up, try to gradually increase your savings each month until you reach the 10-20% goal. This may take some time, but it is well worth it in the end.
Where To Put Your Savings
There are many different places to put your savings, and each person will have their own individual preference. However, there are a few general guidelines that can help you get started. Here are a few tips for choosing a savings account:
- Look for an account with a high interest rate. This will help you earn more money on your savings over time.
- Choose an account that is easy to access or easy to liquidate. This will make it easier to get your money when you need it.
- Make sure the account is FDIC insured. This will protect your money in case of a financial emergency.
What If I Can't Save 20%?
What if you are struggling to save the 10-20% recommended each month, even after applying the above tips?
Firstly, start small. If you can only set aside 50 dollars, do it. But make sure you are budgeting diligently. Overtime what seems like a small amount money will begin to add up. As your budgeting improves you'll be able to spot things that can be improved.
Since there is a limit to how much money you can cut from your budget, the only other big improvement is increasing your income. There are several ways to do this.
- Get certifications
- Go back to school part time to gain a new skill
- Talk to your manager about what you need to do to get a raise
- Get a second job.
- Try Uber, Instacart, or other gig work.
This is all easier said than done. Having a strong support system is important here. Google support groups around saving and paying off debt. Just remember that you are not alone.
Saving money can be hard, but with the right plan and determination the above tips can help you save more of your paycheck at the end of the month.