When asked as part of a recent survey, a whopping 60 percent of Americans said that they do not have the funds saved to cover a $1,000 unexpected medical emergency.
Are you part of this group? Are you looking to bolster your savings account so that you can stay afloat when emergencies arise?
If you’re not doing these things, you should start as soon as you can.
How much of your paycheck should you save, though? Read on for some insights that will help you start saving and prepare for the future today.
The Importance of Savings
It doesn’t matter if you 18 or 78. Everyone ought to have a savings account.
Having a savings account provides you with tons of benefits, including the following:
Help in Emergencies
One of the most obvious benefits of a savings account is that it provides you with access to funds when emergencies arise. Whether it’s an emergency repair to your house or an unexpected medical bill, having a savings account will allow you to cover the costs without running up credit card debt or taking out a loan.
Take More Risks
This might seem counterintuitive at first, but having money saved actually allows you to take greater financial risks. If you know that you have money set aside, you can take calculated risks with your employment and do more than you could if you were living paycheck to paycheck without any kind of cushion.
Saving money allows you more financial freedom and independence, too. When you have money saved, you don’t have to worry about relying on others (parents, friends, romantic partners, etc.) to help you make ends meet. You can make decisions for yourself (travel, take a class, do things you enjoy) knowing that you have the funds needed to back up those choices.
Peace of Mind
Finally, having a savings account gives you peace of mind and helps to lower your stress. Seventy-two percent of Americans report feeling stress about money on a monthly basis.
Chronic financial stress can weigh on your health and make it harder for you to enjoy your life. Saving money can help you take back control and get rid of that unnecessary worry.
How Much of Your Paycheck Should You Save?
Okay, you’re convinced that you need to be saving money. You’re probably wondering, though, “how much should I save per paycheck?” and “what percent of paycheck should go to savings?”
When it comes to figuring out how much of paycheck to save, everyone’s situation is going to be a bit different. However, there are a few general guidelines you can abide by when determining what the right percent of paycheck to save is for you. One of those is the 50/30/20 rule.
Many finance experts recommend following this rule when it comes to managing the way you spend your money. According to this rule, 20 percent of your paycheck goes to savings, 50 percent goes to essential expenses like food and rent, and 30 percent goes to discretionary spending.
This is a good starting point for many people. It allows them to save a bit of money each month so they can start building an emergency fund, but it’s not so large that they’re having to make drastic cuts in other areas.
Of course, if you’re a high-earning individual, you can absolutely save more than 20 percent of your monthly income. If you’re saving for a big purchase, such as a house, it also makes sense to lower your discretionary spending and save more money.
The 50/30/20 rule is a good place to begin, though, especially if you’re brand new to the concept of saving. If you’re not sure what 20 percent of your paycheck looks like, you can always use a “how much should I save per paycheck?” calculator to figure it out.
Tips for Saving More Money
At this point, you might now be wondering how you could possibly put money in a savings account when you’re living paycheck to paycheck. Even if you don’t think you have money to spare, there are some tips you can try that will help you set more money aside on a regular basis:
Evaluate Your Spending
Start by looking at your monthly expenses. This will help you figure out how much of your monthly income is going to basic living expenses and how much is going to discretionary spending.
Once you know where you’re money’s going, you can make adjustments so that you’re able to save at least 20 percent each month.
You might have to do things like cancel your cable subscription or minimize the number of times you eat out. You’ll probably be surprised at the places where you can make cuts, though, without sacrificing the necessities.
Automate Your Savings
Many people find that it helps them to automate their savings, too. Set up your online bank account so that, when your check gets deposited, a percentage automatically gets redirected to your savings account. When you do this, you’re less likely to miss the money that gets saved and will have an easier time adjusting your spending.
Raise Your Income
You may also need to look into raising your income. Consider taking on a side hustle like driving for Lyft or delivering food for GrubHub. This will give you more money to set aside in savings, and you can work when it suits your schedule.
Get Rid of Debt
Make sure you’re paying off debt, too. That should be a top priority, and you should work to pay off your high-interest debts, such as credit card debt, as fast as possible. The sooner you do this, the sooner you’ll have more money to put in your savings account.
Start Saving Today
Having a savings account that you contribute to on a regular basis is essential if you want to enjoy good financial health. Figuring out how much to save each paycheck isn’t always easy, though, especially when you’re first getting started.
Now that you have a clearer answer to the question “how much of your paycheck should you save?” it’s time to start saving. Keep these tips in mind as you begin your money management journey, and you’ll have a much simpler time setting aside the money you need.
Are you looking for more personal finance or money management tips? We’ve got lots of great resources available in our learning center. This article on getting a credit card is a great one to check out next.