There will be certain financial barriers in life, be it small like a flat tire or big like having to fly out to take care of an ailing family member.
It’s important to set aside some money for a rainy day and well beyond. So, how much of that paycheck should you save? According to experts, the norm is 20% of everything you take home. If that percentage seems impossible, here are some ways you can work toward increasing your earnings in order to build a real safety net.
Breaking the pay check-to-pay check cycle
It’s perfectly normal to live paycheck to paycheck. In fact, according to the 2024 CivicScience study, about 1 in 4 people said they do not have enough remaining to save money after paying the bills.
If this is your reality, you know how annoying it must be. Things that might seem like minor inconveniences – like the cost of a prescription medication or regular auto maintenance – can become huge issues if you’re operating on the very thin margin of making do. You might have to borrow money for the expense unless you have a cushion in your savings or budget.
And the secret to breaking that cycle is saving for the future and for a rainy day; besides the big advantage of this, you gain much peace of mind. It can be very fulfilling to know that you might be able to change your car’s tires or cover vet care for your pet before you go to bed at night, and it’s wonderful how having that safety net can boost general overall well-being.
How much should you save aside each pay period?
Though it varies, experts generally say you should save 20 percent of your income a good target. You don’t have to put the full amount into a savings account you can allocate the percentage to different savings goals. These three topics are key to what you should consider when you are crafting your
One of the big pieces of financial security is that of an emergency fund. It’s what saves you when your car needs new brakes, your dog needs surgery, or your washing machine breaks.
Experts typically recommend an emergency fund to cover three to six months’ worth of costs. Using the above example, if you spend around $4,000 monthly on rent, groceries, insurance, and other expenses, you would want to save between $12,000 and $24,000 in an emergency fund, for instance.
You can start even more modestly if that feels too much. You could take a huge step towards improving your finances by saving $1,000 or even $100, and having that money to fall back on could save you in an emergency. Read More
See also: 44 Money-Saving Strategies to Increase Your Wealth in 2024
retirement savings
Most Americans are not saving nearly enough for retirement. Experts on retirement recommend saving 10 percent to 15 percent of your salary; however, these recommendations assume you begin saving when you are in your 20s. You will likely need to save much more money if you wait until later years to begin saving.
But breathe a sigh of relief. The money that’s supposed to be there comes from your employers, as well. You can subtract the matching contributions made by your employer from your income while figuring out your retirement guidelines.
Let’s take a case. You have a salary of $50,000 a year. Therefore you must save in the 10% accounts $5,000 per year to meet the 10% threshold recommendation. You get matched dollar for dollar up to $2,500 for the year if your company matches 100% of what you contribute up to 5% of your salary. You simply need to fund the $2,500 for the 10% account to empower what your company will contribute.
Of course, every extra dollar you can set aside will benefit you in the long run. However, if you cannot save as much as you would like, then you want to save whatever you are able to and be eligible for the full employer match when money is tight.
The earlier you begin, the better off you will be. Suppose that you want to start to save at age 25 and retire at age 65. You can save $100 per month for retirement if you contribute $50 per month with your company matching this amount. Your retirement fund would be about $350,000 by age 65 assuming an average yearly return of 8%.
If you save money equivalent to $200 per month, you will have saved around $700,000. You could have saved enough to be a millionaire in retirement by saving money equivalent to $300 a month.
*The examples assume the individual begins saving at age 25 and retires at age 65, and that the return on the stock market averages 8% every year.
Other savings goals
You likely have other monetary goals beyond that of an emergency fund or retirement account, possibly a new auto, a home purchase, or vacations.
Of course, based on the current price levels, those goals seem unrealistic. It is not uncommon for the price of a new auto to exceed $48,000 and for homes to cost above $500,000.
You can build up a down payment or be able to pay for your dream vacation if you set aside a small amount of money each month.
But suppose you cannot set aside enough of your earnings?
You may not be able to save 20% of your salary if you have some other important expenses or because you live in a location that costs much. But again, start somewhere, no matter how little. Over time, it will add up to save $5 or $10 per month.
Here are some more ideas for finding extra money to save even on a tight budget:
1. Open a high-yield savings account (HYSA)
You can earn the maximum from every dollar you save through placing it in a HYSA. Just like the regular savings account, you will have a much higher interest rate, and therefore your balance shall grow faster. Actually, quite a lot of the high-yield savings accounts come with at least 5% APY.
View our lists of the best high-yield savings accounts available now here.
2. Bring home more dough
There is only so much you can do to cut your budget and costs. When it’s crunch time, think about bringing in more money. For example:
Rent out unused space: If you have a neighbor or local who needs space to store his stuff, then rent out that extra room, parking space, or empty closet. You can list your space by using apps like Neighbor.
Sell unused gift cards: Some 57% of Americans don’t use the gift cards they’re given. Cash in on forgotten gift cards in a local business or restaurant by selling them online for cash at websites such as GiftCash or Raise.
Become a gig worker: If you have available time, you can earn money on websites such as TaskRabbit doing ondemand gig labor. Stern college of commercial
3. Use round up savings tools
Some banks do have roundup tools that are available with investment or saving accounts. That is when the bank rounds up the purchase to the next full dollar and puts that difference straight into your savings or investment account when you’re checking out or paying a bill.
For example, if you pay $3.50 for a cup of coffee, the service will round that to $4.00, and your bank account will be charged the additional fifty cents. Your change can add up over time.
Roundup options are provided by Acorns, Bank of America, SoFi, and many other services.
