If you’re earning money every week, you may be wondering why you need savings in the first place.
Well, odds are you won’t want to be working for the rest of your life. For most people, their savings go directly toward their retirement fund. On top of that, saving money can help create a bit of a financial safety net to help you stay afloat when unexpected expenses pop up.
Saving money every week can also help you collect money for fun short term expenses like vacations of a new gaming console.
So, if you find yourself wondering, “How much of my paycheck should I save?” Don’t panic — we’re here to help.
Here’s everything you need to know about how much you should be saving and why that money is critical to your future financial success and security.
The 50/30/20 Rule
It’s one of the most popular and most frequently cited rules in the financial world.
The 50/30/20 rule is an overall financial plan that covers not only how you should spend your paycheck, but how much of it you should save.
According to this rule, you should budget 50% of your paycheck on necessities, such as rent, food, and bills. Then, 30% of your income can go toward “wants,” like entertainment.
Finally, 20% of your paycheck should go directly into *personal* savings.
While you can dump the entire 20% into one savings account, the money you save can cover everything from your retirement savings to paying off debt.
A good rule of thumb is to put 10-12% of your paycheck toward your retirement. Then you should filter the rest into an emergency fund and savings for short term expenses like car payments.
How Much Do You Make?
Depending on how much money you make, 20% can seem like an impossibly high amount of cash to squirrel away every week.
After all, we all have bills to pay, groceries to buy, and sometimes making ends meet doesn’t leave a lot of wiggle room. 21%, that’s one in five Americans aren’t putting any money toward their savings at all.
While you should strive to reach the 20% mark, eventually, the goal of savings is to save. Find a percentage that works for you. It can be 12%, 5%, or even 1%. As long as you put some amount of money away with each paycheck, you’ll be able to start building a solid foundation for your financial future.
Finally, if you prefer, you can also forgo the percentages and put away a set amount of cash every week. However, this method works best if you earn a fixed salary. So, freelancers and contractors may want to stick with the percentage method.
Side Note for Freelancers
If you’re a freelancer or independent contractor, odds are you have the added responsibility of paying your taxes out of pocket.
To help manage this responsibility, you should set aside a percentage of your paycheck every week. As a general rule, setting aside 25-30% will help make sure you have enough to cover your estimated taxes.
Tracking Your Finances
As you’ve seen here, there’s a lot of math involved with figuring out how much you should save every week. And, the best way to make sure you’re covering all your bases is by keeping track of how much money you’re bringing in.
If your employer doesn’t give you physical paychecks, use a paystub generator to help keep physical records of how much you make.
Once you have a record of your income, create a spreadsheet to keep track of how much you make, and how much of that needs to go into each of your savings accounts.
How Much of My Paycheck Should I Save?
Saving money isn’t a sprint — it’s a marathon. The trick is to set a slow and steady pace and stick to it.
Everyone’s economic situation is different. But by following these guidelines, you’ll be able to build yourself a sturdy financial base.
Now your question shouldn’t be, “How much of my paycheck should I save?” But, “What am I going to do with all this money I saved?”
Are you looking for more financial tips and tricks? We’ve got you covered.
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