If you’re trying to boost your bank balance with some sound investment, knowing how much you have to play with is crucial. Just because you’re not on a six-figure salary does not mean you cannot invest.
As long as you have a strong idea of how much should you save from each paycheck, you can start to make your money work for you, however much you have.
More than half of all Americans invest their money, meaning that you should definitely be able to do so too. If you’re looking to get started, here’s how you can figure out how much you should save.
First Step: Calculate Your Salary
If you’re scratching your head and asking yourself “how much of my paycheck should I save?”, the first thing you need to do is actually figure out how much you make.
Simply having a vague idea of your gross salary will not cut it if you want to invest wisely and safely. Make sure to keep proper documentation of your incomings and expenses.
You should use a Paystub maker, particularly if you’re a freelancer, to generate proper documentation of your salary. Once you have a decent average idea, you can start dividing up your income into savings and investments.
How Much Should You Save from Each Paycheck? The 50/30/20 Rule
If you start asking people “how much should I save a month?”, seasoned savers might respond by telling you about the so-called ’50/30/20 rule’. This stipulates that 50% of your monthly salary should go on essentials such as food and rent.
Another 30% should be reserved for discretionary spending and general living expenses. After this, the remaining 20% should be used for savings (or investing in low-risk vehicles).
The idea reportedly comes from none other than senator Elizabeth Warren, who used to teach this as her ‘golden rule’ when giving free bankruptcy classes. So, if you’re still wondering “how much should I be saving?”, let’s give an example.
If your net salary after tax is $2000 a month, then you know that $1000 can be used for necessities. After this, $600 can be used for discretionary spending. This means you have $400 leftover to save and invest, which is a very enviable position to be in.
Other Things to Consider
Of course, the 50/30/20 is not a universal answer to the question “how much money should I save?”. If you’re looking to invest, you might want to adjust this so that you’re still saving 20% and not touching it.
After this, take 10-20% from your discretionary spending budget and invest that instead. This allows you to invest whilst also guaranteeing increased security from savings.
This important thing to remember is that saving your salary is not just about siphoning off whatever you feel you can spare every month.
It’s about a total lifestyle adjustment that reduces wasteful spending to help propel you to a place of financial comfort and security. This is something that is far more valuable than any impulse purchase.
Now that you know how much you should save from each paycheck, it’s time to get started. Make sure to consult our Save Money guides to learn exactly what changes you need to make to save more money today.