Savings. It’s a word that evokes mixed feelings from each and every one of us. On one hand, we all know we should be doing it—allocating a percentage of each paycheck into your savings account helps you not only prepare for retirement, vacations, and hobbies, but also prepare for unexpected expenses. On the other hand, saving money is just plain difficult. You may not be able to put a flat amount into your savings each month, or you might just find it a hassle. Well we’re here to help. With these simple tips, you’ll be saving more money in no time.
The 50/30/20 Rule
The first and most difficult question involved in savings is “How much money should I be saving exactly?” There’s actually a very simple answer to this question, and it can apply to people of all incomes. The 50/30/20 rule goes like this: put 50% of your income toward living expenses (house/apartment payments, utilities, etc.), 30% can be used toward personal expenses like that streaming video service or gas for your car, and 20% should go toward your financial priorities, like loans, car payments, and savings.
So how do you apply this to your own personal financial situation? Let’s say that you make $40,000 per year. $20,000 of that can go toward your living expenses. 30%, or $12,000 can be allocated toward personal expenses, and 20%, or $8,000, should go into your financial priorities.
Now this isn’t to say that these numbers aren’t flexible, but you definitely should not be spending more than 50% of your income on living expenses. The 30 and 20%? Feel free to save a little bit more and bring that 30% toward personal expenses down to 25%. It may require a little bit more frugality on your part, but you’d be surprised in the difference that extra 5% a year can make.
Making More = Saving More
There comes a point in everyone’s lives where they start making more money. Which is great! Congratulations! But what should you do with this extra money that’s just been handed to you? Well, you do have a lot of options here.
You could spend your newfound fortune on clothes, more trips to Starbucks, or that new car you’ve always wanted. But should you? Probably not. It’s usually best to take that extra money you’re earning and put it straight into savings. If you were doing financially fine before your raise or promotion, will you be missing this new money if it goes straight into your savings account?
Other situations that might affect your savings might be paying off that old student loan, your car, or your home. You’ve now got all this extra cash that before was just going straight into payments. But you’ve also got a brand new opportunity to increase your savings and your financial stability.
Your Situation Is Key
But really, the amount you should be saving depends on your own personal financial situation. Someone who has more high-interest debt payments should focus on those first. If you’re a little more strapped for cash, an emergency savings account should take priority so you can create a safety net in case of any unexpected expenses.
Regardless, setting aside at least 20% of your income every month for payments, debts, and savings is the best course of action for someone looking to increase their financial security.
Still having a difficult time figuring out what you should be doing? We’re here to help. TexStar Bank has a variety of savings, CD, and money market account options to suit everyone’s needs. Call or come in today, and we’ll help you strengthen your financial security—and your future.