The journey to reach your financial goals can be as simple as saving money from your paycheck! Check out our article on how much of your paycheck you should save.
Are you setting aside enough money for your paycheck for the future? While it might not spark excitement, the act of saving is a critical component of financial wellness. The answer is not one-size-fits-all; it varies depending on personal circumstances and financial ambitions.
1. Prioritize Your Bills
Begin with creating a budget that includes your main bills such as rent, groceries, utilities, and transportation. Tackling the vital expenses first will provide you with a clear picture of the funds available for saving. Once a budget is created, don’t forget to plan to treat yourself to a nice dinner, new shoes, or anything else recreational.
2. Understand Your Savings Target
While the adage suggests saving 10-20% of your income, modern financial planning encourages a more nuanced approach. Tailor your savings based on the timelines and importance of your goals. For example, long-term aspirations such as home ownership or retirement will require a different strategy compared to short-term objectives like buying a new outfit or upgrading a household appliance. Make a list of your goals and put them in order of importance. Once you know what is most important, make sure it is a SMART goal, meaning Specific, Measurable, Attainable, Relevant and Time Based. Setting yourself up for success means you have less of a chance of not meeting your goal.
3. Budget for Success
Budgeting plays a pivotal role in managing your savings. You may have heard of the 50/30/20 rule. This is when you allocate 50% of your income to necessities, 30% to wants, and 20% to savings. Everyone has a different path to their financial journey. Flexibility here is key; don’t be disheartened if you can’t hit that 20% mark right away. Starting small and increasing your savings rate over time can still put you on the path to success.
For example, let’s say your monthly take-home pay (after tax) is $4,500 per month. This is how it breaks down, following the 50/30/20 rule:
- $2,250 towards necessities
- $1,350 towards wants
- $900 towards savings
From that $900, you may set aside $450 for retirement. The other half you can put $225 for emergencies and invest the $225 for your long-term goals.
4. Find a Home for Your Savings
You have a plan for building your savings, and now want to know where it should be stored. It depends when you need to access it and how comfortable you are with risk. The most common options include:
- Checking account – this will give you the fastest access to your funds for any upcoming bills
- Savings account – mainly for short-term and future goals, or a wise choice for emergency funds
- Retirement account – this is great for a 401k, Traditional IRA, or Roth IRA
If you decide to invest your money in a retirement account, we recommend talking to a Financial Advisor, as they will be able to help you assess your current financial situation to make the best decision about how to invest.
Calculating how much of your paycheck you should save may seem like doing extra work. However, gaining a thorough understanding of your financial standing simplifies the process. An informed approach to saving not only accelerates the time it will take to achieve your goals but also provides peace of mind and financial security. The most important thing is to start saving whatever you can now. Even a small amount saved per month can make a big difference!
