How to save money from your salary each month, instead of watching it disappear through your fingers? Check out these amazing tricks to make sure you start growing that piggy bank today.
“How much of my salary should I save?” This can be a daunting question for anybody who has never delved into at least some financial planning in their lives. And you would be surprised how common this is.
Studies have shown that a remarkable number of the population is not saving any money at all, many even going into debt every month. For example, in the USA, that figure accounts for over 70% of the population.
There are many reasons for this: inflation is a reality in most countries (even first-world ones) and it erodes salaries over time. In certain cities, the standards of living are insanely high (hello NYC), and the cost of rent alone can take a big chunk out of your paycheck.
However, it’s also true that we modify our spending to fit our salary. As our income increases, we also tend to increase our standard of living: items that were once a luxury become necessities, we give in to our every whim and desire.
This change in mindset is a big problem, because it limits your ability to build savings and could get you in financial trouble in the future. Saving money from your paycheck consistently will require, first and foremost, discipline and being honest with yourself. This is your financial wellness that’s on the line.
So, how to save money from your salary? The most important thing is to get started and to keep it up over time. Here are some simple hacks to get going.
How Much of Your Salary Should You Save Each Month?
When you start thinking about how to save money from your monthly salary, this is usually the first question that pops into mind: how much of your paycheck should you save?
There’s no one-size-fits-all answer to this, but in the end, it will depend on your income and your financial goals. It’s not the same to save for a downpayment on a house than for your next vacation or a new TV.
However, there is a rule of thumb that’s called 50/30/20. This means striving to allocate 50% of your salary to living expenses, 30% to lifestyle expenses, and 20% to savings. So you can take this as the default, compare it with your income and personal goals, and adjust accordingly.
How To Save Money from Your Salary
Let’s delve into the practical advice you’ve been waiting for. Here are a few tips on how to save from your salary wisely.
Track your income and expenses
First things first: you can’t improve what you can’t measure. It’s shocking how many people don’t really know how much they spend each month —and on what. Do you know how much you spent last month on groceries? Right.
Check exactly how much money you get from your paycheck after taxes, and start taking note of every single purchase or payment you make, no matter how big or small. There are many apps you can use, or just do it the old-fashion way and put it on an Excel sheet.
Budget: plan how to spend your income
Now that you know how much leeway you have (or not), it’s time to plan. Ugh, I know, it’s a pain, but a necessary one, you’ll thank me later. So grab your favorite cup of coffee and a pastry for motivation, and think about your financial goals, both short-term and long-term financial goals.
Determine how much you’re going to save for those goals and to pay for your true needs, budget categories such as housing, transportation, health, and food. Once your needs have been met, you can budget for other items that are important for you, entertainment, etc. You could use the 30 30 30 10 budget rule to budget for the month, for example.
Automate savings from your paycheck
You know that amount you decided to save in the previous step? Set up an automatic transfer for that amount to a savings account every time you’re paid, so you won’t be tempted to use it.
Try to pick an account you never use, so you don’t even see that money, and if it’s an account that pays you interests, even better.
Some bank apps even have “spaces” or “vaults” that you can assign for different goals. For example, you can create a space to save for a downpayment on a property you want to buy, another for your emergency fund, etc. It’s a great way to keep your savings organized.
Reduce fixed expenses
Our biggest expenses are usually housing, transportation, and food. Is there any way to cut your expenses? Maybe moving to a different apartment or neighborhood? Using public transport instead of your car?
Being smart about where you buy your groceries can also save you tons of money. Do a weekly or monthly trip to a big supermarket instead of shopping in small quantities at the corner shop every other day. Bigger supermarkets have better prices and special deals every week.
This is the easiest fixed expense to reduce. It takes minimal planning (making a shopping list) and the benefit is big.
Reduce services expenses
Go over your monthly expenses, such as insurance, phone, TV and gym subscriptions, and see if you can make adjustments somewhere.
You can negotiate with your current provider for a lower rate or consider changing providers (wait until there’s a promo and then switch). The companies that offer these services usually have deals, or they will offer one if you tell them you’re leaving.
Cut down on electricity bills: buy LED light bulbs (they use 75% less energy than incandescent lighting), unplug devices when not in use… Those small changes can add up to a lot at the end of the month.
Cut out unnecessary expenses
Are you really using that gym subscription? Are the magazine subscriptions adding to your life? Do you need to be signed up to Netflix, HBO Max, Disney Plus, and Hulu? Pick your favorite and cancel the rest.
Dining out or buying lunch every day at work also adds up to a lot. Prepare packed lunches instead and get more conscious about your entertainment options. These are things to stop buying to save money.
I know peer pressure can be hard, but try having your financial goals in mind and be clear about what you’re willing to compromise or not.
You don’t need to become a monk, but for sure you can pick a cheaper restaurant, or dine out once instead of twice on the weekend. See where I’m going?
Make your money less accessible
Put your savings in a separate account and never carry around the card for that account. Maybe even disable the NFC option from your phone. These little hacks will make it harder for you to access your money on the spot, and will give you a few extra seconds or minutes to think before you buy.
Investing part of your savings is also a great way to reduce temptation. If invested well, you’ll see your savings growing and producing interest every month, which is a huge motivation to keep saving.
It also takes a bit of time to withdraw your money when it’s invested (usually a few days or at least a few hours), which makes it impossible for you to use it to buy something on the spot, hence preventing you from spending it.
Be careful with debt
This is a big one. Getting rid of debt is the very first step towards financial independence, so this should be your number one priority if your goal is to start saving money. If you’re in debt, allocate part of your extra money every month to pay that off.
If you’re debt-free, then don’t go into debt unless it’s for a very good reason, like buying that house you’ve been saving for. And make sure you have a plan and timeline to pay it off.
Of course, sometimes there are emergency situations that make us go into debt, and we can’t foresee those, but if you save consistently every month, at least you will have those savings to count on to keep your head above water. That’s what emergency funds are for.
Save your extra income
Bonuses, raises, money from extra gigs or gifts… they are very tempting, aren’t they? Put all that away with your savings ASAP!
Raises at work, in particular, can be very tricky, because they make us want to upgrade our lifestyle, knowing that it’s money that will be coming in every month. But if you’re living comfortably already, why not save the extra income right away? Or better, put it to work? Your future you will thank you.
Saving from your salary doesn’t have to involve depriving yourself of enjoyment. In fact, you’ll be budgeting for those things that you like! But so many people have no clue about how much they really make and how much they spend.
I hope these tips on how to save money from each paycheck help you get started and set you on the road to financial freedom.
FAQ | How to Save Money from Salary
The short answer would be yes! How much of your paycheck you save depends on a lot of factors, but 30% is very good (the advice is to save a minimum of 20%). However, don’t feel guilty if you can’t save this much. We all have different realities, and as you get better at financial planning, you’ll surely get better at saving too. Cut yourself some slack and keep working.
The tips for saving money are the same in general, regardless of your income. If your salary is small, cutting down on your lifestyle expenses and reducing spending to the bare minimum will be key. In addition, start working on building more income, getting side hustles, changing jobs, etc. And remember, the most important thing is building healthier spending habits. That will help a lot in the long run. Work on that.
The rule of thumb is to try to save 20% of your salary. However, your income and goals will have a clear effect on these numbers. If your income allows, try to save more, especially if you have big long-term goals (such as buying a house).