Unless you are one of the lucky ones blessed with generational wealth, you rely on a salary to fund your needs, wants, and overall lifestyle. We all have to take our limited salary and save wherever we can. Saving money can support our living expenses, boost our savings accounts, and fund our overall financial goals.
Saving money requires discipline, appropriate financial planning, and regular budget reviews to see where you can cut corners and improve your bottom line. Wondering how to save money from your salary? Here are some ways to get started
How To Save Money From Salary
Evaluate Current Income and Spending
There is a simple truth when trying to figure out how to save money from salary: It is only possible if you have a broad understanding of your monthly budget plan. It means you need a comprehensive financial inventory of the following:
- What is your take-home pay? What is your monthly salary after taxes?
- What are your monthly expenses? Furthermore, you should divide up your expenses between what is essential and what are non-essential expenses. It can give you a better idea of where to make cuts and save money.
- What are your long-term financial goals? Are you looking to pay down existing debt? Save for retirement or college? Afford a down payment on a home?
Once you have this information, you can understand where you spend money and determine the best way to achieve financial success.
A budget template can help you plan. If you do not have an existing budget, start by looking at your current bank and credit card statements to determine how much you spend and what your essential and non-essential expenses are.
A more straightforward approach could be using free software like Personal Capital.
Compared to other budgeting apps, Personal Capital doesn’t need you to do the tedious task of setting up a budget. After you link all your accounts together, it looks at your current spending and creates a budget for your lifestyle. You can then modify it as needed. You can read my Personal Capital Review on how I use the various components and set up your free account.
Analyze Your Expenses
Not all expenses are created equal. If you are ultimately trying to figure out how to save money from your salary, you will need to identify ways to save money by reducing your living expenses. Thankfully, there are likely a few tips you can use to keep extra cash in your pocket.
First and foremost: Use some financial tracking software, like Personal Capital. It will enable you to categorize your expenses and automatically track where you are spending your money. Once you have this done, you can understand where you spend the money from your salary.
You should be able to automatically synchronize your budgeting app with your credit and bank account, which automates your ability to track your finances.
From there, you can begin to find ways to cut expenses.
Cut Subscription Services
One of the first places many of us can look is subscription services. You can discover subscriptions you rarely use, which can be canceled. At a minimum, you’ll see what you want to use and adjust accordingly.
Trim is an excellent service that looks at all your current subscriptions and saves money by eliminating unnecessary money leeches. Also, instead of paying full price, see if Trim can negotiate lower cable, phone, and internet bills.
One of the most significant ways to reduce spending is by comparison shopping before making any purchase. This is particularly important for recurring bills in major financial categories – like grocery shopping, gas purchases, car payments, monthly rent, or before you make a significant purchase.
Eating out at local restaurants is a very typical expense. One of the best ways to save money is to find local restaurant deals that will enable you to reduce your bill. Even the smallest coupons and discounts can add up over time.
Additionally, instead of spending money on entertainment, you can look at the community event listings in your local paper and find ways to reduce the amount of money you spend.
Swap out expensive hobbies for cheaper ones, such as reading. Utilize your local library and read some of the best books on personal finance to improve your financial knowledge.
Start With an Emergency Fund
Now that you know where you are spending money, you can begin to answer difficult questions about the critical savings goals you can achieve.
Everyone should have an emergency fund. It should be a separate part of your savings account that you don’t touch except in an emergency. There are different answers to how big your emergency fund should be, but generally speaking, it is accepted that it should be at least three months of monthly expenses.
Keep in mind this is more of a bare-bones expense. The fund can float you through a loss of income or help cover unexpected expenses.
When economic conditions get worse, the possibility of layoffs increases and it is harder to find the next job. Increase your emergency fund to six months of expenses to prepare for an upcoming recession.
Pay Down Your Debt
One of the most important things you can do for your personal finance is to pay down your debt. Almost all of us have debt – it’s a simple fact of modern life. However, the type of debt you have – and how you manage it – can be critical to your long-term financial success.
Of course, credit cards and high-interest loans are the worst and should be the priority. Mortgage debt is acceptable as long as you can continue making the monthly payments even if you lose your job.
As such, you should create a spreadsheet of your debt to understand your debt load better. It would help if you listed who the money is owed to, the minimum monthly payments, total debt, and interest rates.
From there, you can begin to build a debt repayment plan. There are two debt repayment plans that you can potentially use:
- Debt snowball: The debt snowball lets you pay off debt from smallest to largest. Once you pay off one piece of debt, you can use that extra money to pay off the next piece of debt, and so on. Although not optimal, this method was popularized by Dave Ramsey of the Cash Flow Quadrant fame.
- Debt avalanche: This strategy is slightly different. Instead of concentrating on the lowest balance, you repay the highest interest rate. It encourages you to save money by reducing the amount you waste on interest payments and is the better option mathematically.
Automate Savings and Investment
After having an adequate emergency fund and paying down high-interest debts, focus on goals such as saving or investing.
Once you have determined how much money you can save each month, consider setting up an automatic transfer from your paycheck to a savings or investment account. This will ensure the money goes into savings automatically, so you don’t have to think about it. You can also use this tactic to save for specific financial goals like vacations, a child’s education, and retirement contributions.
Use a savings account for short-term financial goals within two years or less. Typical examples are weddings, vacations, down payment on a starter home.
A big part of saving is making sure you are generating the most interest possible.
For the past few years, rates on savings accounts have been very low, and there was a reduced incentive to save money. However, these rates are now finally rising. If you are a salaried employee, you can automate the savings process by dedicating a portion of your direct deposit to a separate account.
It would be best to compare local and internet-based banks to see who will give you the best interest rate. Remember, interest compounds over time which means that more interest generates more money, and this money, in turn, generates more interest.
For goals with a timeframe between 12 to 24 months, consider I-Bonds. Although you have a 3-month penalty for withdrawals before the five years, you can earn interest by keeping pace with inflation. A fixed deposit with an FDIC-insured bank could be another option.
For longer-term financial benefit, it’s also essential that we include investing for our future selves. Learning how to invest is one of the topmost personal finance fundamentals that everyone should know.
Investing in stocks has been dramatically simplified, with few platforms providing automation. Consider putting your money in mutual funds or index funds, or ETFs. You can use a recurring deposit to fund these investment accounts regularly.
To avoid complexity, you could invest in a simple index fund such as the S&P 500.
M1 Finance has zero fees, low minimums, fractional shares, and automated investment options. You can read my M1 Finance review on how to set up weekly or monthly automated investments and get started with $100.
Fundrise is available to all investors, including non-accredited investors, and offers low minimums of $100.
Both stocks and real estate can be risky, so it’s essential to understand the risks involved before investing your hard-earned money. No matter what we choose to do with our money, it’s important to remember that patience is vital.
Investments can take time to grow, so be prepared to wait a while before seeing any significant returns.
How Much To Save From Your Paycheck Each Month
The most popular 50/30/20 budget rule states that you must save at least 20% of your after-tax money.
After paying living expenses and bills to cover emergencies and other unexpected costs, you’ll want to ensure you have enough money left over.
Suppose you can manage more, great! But if not, even a few dollars saved each month will help build a financial cushion over time.
What To Do if You Can’t Save 20%
Of course, it is hard to save money when you have a low income and are barely scraping by.
You’re not alone. Millions of people are in the same boat, struggling to make ends meet each month. Increasing your income is the only option.
You can increase your income by
Investing in Yourself
Investing in yourself by improving your human capital is essential in increasing your salary.
Taking courses and learning new high-income skills can broaden your knowledge and make you more qualified for higher-paying positions. Further, by having more knowledge on a relevant topic to your job, you may gain leverage when asking for raises or promotions.
Investing in yourself through education prepares you for career advancement opportunities and offers lasting rewards that make a difference in your financial life.
Adding Income Sources
In addition to saving what you can, consider creating additional types of income.
Side gigs can increase your income. Depending on your skills, time constraints, and other factors, pick something which has a high ROI of time/effort.
Ideally, if your side hustle is aligned with your day job or hobbies, it will reduce the learning curve or make it more enjoyable.
With the power of the internet, you can accelerate the reach of your side gig by starting a website.
Automated tools make it easy to start a website in 10 minutes with zero computer programing skills. Here is my Bluehost affiliate link to get started with a monthly cost of only $3.95.
Watching Your Savings Grow
Identifying how to save money from salary can be a real challenge. We all have different pressures, and developing the discipline to avoid impulse buying to save money can be a massive challenge.
However, with a limited monthly income, saving money can be challenging. Fortunately, there are things that all of us can do that can make saving money easier. The more you automate the process, reduce unnecessary expenses and minimize lifestyle expenses, the quicker your average net worth will increase.
Remember, you don’t have to immediately become a financial guru who knows how to save like an expert. It’s more important that you do something – anything – to start saving money. The rest will eventually fall into place, allowing you to lead a better life ahead.
You can do a few things if you want to save money from your salary.
- Invest in yourself by taking courses and learning new skills to help you get a raise, promotion, or earn additional income.
- Make a budget and stick to a spending plan.
- Live below your means, so you have more money to save each month.
- Automate your savings by setting up automatic transfers from your checking account to your savings account each month.
- Invest in long-term tax savings vehicles, such as 401(k)s, IRAs, and HSAs, to take advantage of compound interest and grow your money over time.
Following these tips can save money from your salary and secure your financial future.
John Dealbreuin came from a third world country to the US with only $1,000 not knowing anyone; guided by an immigrant dream. In 12 years, he achieved his retirement number.
He started Financial Freedom Countdown to help everyone think differently about their financial challenges and live their best lives. John resides in the San Francisco Bay Area enjoying nature trails and weight training.
Here are his recommended tools
M1 Finance: John compared M1 Finance against Vanguard, Schwab, Fidelity, Wealthfront and Betterment to find the perfect investment platform. He uses it due to zero fees, very low minimums, automated investment with automatic rebalancing. The pre-built asset allocations and fractional shares helps one get started right away.
Personal Capital: This is a free tool John uses to track his net worth on a regular basis and as a retirement planner. It also alerts him wrt hidden fees and has a budget tracker included.
Streitwise is available for accredited and non-accredited investors. They have one of the lowest fees and high “skin in the game,” with over $5M of capital invested by founders in the deals. It is also open to foreign/non-USA investor. Minimum investment is $5,000.
Platforms like Yieldstreet provide investment options in art, legal, structured notes, venture capital, etc. They also have fixed-income portfolios spread across multiple asset classes with a single investment with low minimums of $10,000.