Setting aside some money from your salary for your savings is the smartest thing you can do. If you have a salary as a web developer, an environmental engineer salary, or any other trade, you should set aside money for the future. You also shouldn’t forget about the 401k portion.
When it comes to personal finance, saving is one of the best decisions anyone can make. However, a common question that comes up is how much money should be set aside from each paycheck. In general, there is no single answer to this question, as several factors can influence how much money someone should save.
Everyone’s economy is a world of its own, so this question does not have an absolute answer that everyone can follow. However, there are certain factors that can be considered when putting together a savings plan.
What percent of your paycheck should go to savings?
A general rule of thumb that many people use and recommend is the 50/30/20 rule of savings earned for the month. This rule suggests that 50% of income should go to necessary expenses, 30% to discretionary expenses, and 20% to savings. However, this rule may not be applicable to all cases, as some people may have necessary expenses that exceed 50% of their income.
@kevinstemplates Replying to @impulseb9 how to save using the 50/30/20 budget challenge #savingtips #personalfinance
Another important factor to consider is each person’s savings objective since we do not all save money for the same given purpose. Someone who is saving for a house or a car may need to save more than 20% of their income, while someone who is only saving for emergencies may need less.
Ultimately, the amount of money someone should save from each paycheck will depend on their individual financial situation. It is important to consider income, expenses, and savings goals to determine the appropriate amount to set aside for savings.
How do I determine my necessary and discretionary spending?
A very essential factor when saving money is to determine your existing expenses, separating them into necessary and discretionary. To determine your necessary and discretionary expenses, the first thing you should do is create a detailed budget of your income and expenses. To do this you will need to follow the following step-by-step:
- Identify your income: This includes any money you receive from your job, business, investments, or any other source of income
- Record your expenses: Make a list of all the expenses you incur each month, from bills and rent to entertainment and impulse buys
- Categorize your expenses: Separate your expenses into two main categories, necessary and discretionary. Necessary expenses are those you can’t avoid, such as rent or mortgage, utility bills, insurance, transportation, and groceries, among others. Discretionary expenses are those that are optional, such as eating out, traveling, buying clothes or electronics
- Calculate your necessary expenses: Add up all necessary expenses to determine how much money you need to cover your basic needs each month
- Calculate your discretionary expenses: Subtract your necessary expenses from your total income to determine how much money you have left over for discretionary expenses. Divide this number into discretionary spending categories, such as entertainment, shopping, travel, etc
One thing to remember is to always be realistic and honest about the expenses you will have during your month. If you are having difficulty reducing your discretionary expenses you may consider cutting some of them temporarily to save money.
What tools can I use to track my expenses?
There are several tools you can use to track your expenses, each tailored to your needs and capabilities. Remember that the most important thing is to find a tool that suits your needs and spending habits. By tracking your spending, you can identify areas where you can save money and work toward your financial goals. Some of these tools are:
[wpdatatable id=426]Mobile apps
There are many free mobile apps that can help you track your spending. Some of the most popular include Mint, PocketGuard, YNAB (You Need A Budget), Goodbudget, and Personal Capital. These apps allow you to enter your income and expenses, categorize your spending and set budgets.
Spreadsheets
If you prefer a more customized tool, you can use a spreadsheet, such as Microsoft Excel or Google Sheets, to track your expenses. You can create your own budget template and categorize your expenses according to your needs.
Online banking services
Many banks and credit unions offer online banking services that allow you to track your spending and set up spending alerts. Some banks offer expense tracking tools integrated into their website or mobile app.
Notebook or journal
If you prefer a more traditional tool, you can keep a notebook or journal to record your expenses. This can be useful if you prefer to write manually and don’t want to use an app or computer program.
How can I split my paycheck if I have debt?
If you have debts, you must prioritize paying them off before focusing on saving, since debt can be much more dangerous than the benefits of saving.
After you have established a plan for paying off your debts, you can begin to consider how much you should save from each paycheck. A good strategy is to establish a budget and try to save a set amount each month. If your debts are high, you may need to temporarily reduce the amount you save to pay off your debts faster.
Never stop having a fund
Something you should always remember is that saving is important since this will be the money that allows you to get out of any emergency. You should always make sure you have an emergency fund that allows you to cover unforeseen expenses. Once your debts are paid off, this amount can gradually increase as you become free of obligated payments.
References
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“How Much Should I Save Each Month | TIAA.” Investing, Advice, Retirement and Banking | TIAA, https://www.tiaa.org/public/learn/personal-finance-101/how-much-of-my-income-should-i-save-every-month. Accessed 3 July 2024.
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Loudenback, Tanza. “How Much of My Paycheck Should I Save? – Buy Side from WSJ.” The Wall Street Journal – Breaking News, Business, Financial & Economic News, World News and Video, Buy Side from WSJ, 28 Dec. 2022, https://www.wsj.com/buyside/personal-finance/how-much-of-my-paycheck-should-i-save-01671734785.
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Wolfson, Lily. “How Much Money You Should Save Every Paycheck.” CNBC, CNBC, 21 Aug. 2022, https://www.cnbc.com/select/how-much-money-you-should-save-every-paycheck/.