Hello, I’m Judy Copenbarger and welcome back. Today’s tip will answer a question many people have. Exactly how much of my paycheck should I save? You may find it’s almost too easy to spend that paycheck you were looking forward to all month as bills, life, and expenses you couldn’t even anticipate start requiring a piece of it.
This is something we have to deal with, but with a little proper planning, we can feel prepared and confident. We’re able to prepare and save money for those goals that are most important to our happiness. We can plan for a great future.
How to make savings goals
The first thing we need to know is what our savings goals are. If you’ve never set up a budget or a spending plan, I have you covered. Be sure to check out my other article, “How To Get My Finances In Order | Step By Step Guide” to learn all about how to turn those goals into specific dollar amounts that you can manage.
The 50, 30, 20 rule of saving
Once we know how much our goals require us to save, whether it’s that mortgage payment on a new home or that car you’ve had your eye on, then we can achieve those goals with a simple tried and true saving method. The 50% 30% 20% rule of saving. This is a commonly known method of saving that works because it is simple. This is how you can get your head around and always appropriate your income no matter how much you make. We’re going to break down our paycheck into three categories every month.
This way we can create a complete picture of where our money is going and we can make sure it goes to that which we value most.
The 50%? Well, that’s your essential spending. Those nagging bills, groceries, and expenses that are absolutely essential to your day to day life had this money available to you in a checking account so when the time comes to pay, it’s easily accessible. You could call this category the needs category.
The 30% will be your personal spending. This is your money to spend on those things that already make your life fulfilling and fun. Think about the expenses that enrich your life but aren’t really a matter of survival and put those in this category. And as disappointing as it is, I know I couldn’t put chocolate in this essential category. Wish I could. You could call this category your wants.
Long term savings
Lastly, that 20% will be long-term savings.
This is money that goes towards those future life goals that we can’t stop thinking about. If you could save 20% of your paycheck every month, those thoughts would be peaceful and exciting to think about. Put this money in a longterm savings or investment account and watch it grow over time. You could call this category the sustainability category.
Remember that these rules are more like guidelines as your goal should be personal to your life. You don’t have to follow them exactly just because I said so. You can save even more and achieve your goals even faster by adjusting these percentages in a way that’s more appropriate for you.
How to make saving easier
My last tip is always to make saving as easy as possible. You can set up a new savings account and make automatic monthly transfers using your bank or do it directly with your employer. By saving automatically, you’ll be successful and stress-free without having any more work than necessary.
It might make sense for you to save at a bank or credit union that is not in your neighborhood, so your savings are really your savings. Make it inconvenient for you to crash that account. What I mean is don’t go invading it. It’s supposed to be savings. Saving money shouldn’t give you a headache. It should be exciting.
Now we know it’s possible and it’s not hard to do so pull out your pen, pull out your paper, and create a plan of action for that next paycheck. Get ahead of it and have peace of mind. Know exactly where your money’s gonna go.
Let us know in a comment below what that one item was that you wanted to put in the essentials category, but it was really something you enjoyed as a personal expense. I’m looking forward to your answers.
If you have a loved one who’d be encouraged to start saving, please share this article with them.
I’m Judy Copenbarger and until next time, God bless.
Judy Copenbarger is the Founder and President of Comprehensive Financial Services, based in Irvine, California.
She holds a Juris Doctor Degree, with a Taxation Emphasis, is FINRA Registered and maintains various Securities and Insurance Designations. Her professional expertise is in Estate Planning, Retirement and Education Planning.