You’re looking at your hard-earned paycheck. There are many things you would like to buy, but you know you should save at least some of it. But how much? You feel like you can’t decide how much of your paycheck to put into savings.
Here’s some help. Use the following tips to learn what percentage of your paycheck to save and what you can afford to use on today’s wants and needs.
How much of your paycheck you should put into savings
Advice from financial experts varies, but all agree that a percentage of your paycheck should go toward savings. Some recommend just 10 percent. Others say that 30 percent or more is wise.
There is a good rule of thumb that is simple to remember and offers a middle-of-the-road approach that falls between these other extremes. The method is the 50/30/20 rule. Using this method, you apply 50 percent of your take-home pay to cover essentials (shelter, food, transportation, etc.). Another 30 percent is used to pay for nonessentials (cable TV, eating out, etc.). The last 20 percent is saved for the future (large purchases, retirement, etc.).
But what about…?
Of course, there are many factors you must consider as you determine what percentage of your paycheck to save. These factors may require a slight adjustment from the 50/30/20 rule:
- Income: If your income is higher than average, you may be able to save a higher percentage for the future. This is especially true if you make an effort to live modestly in order to reduce current expenses.
- Fixed expenses: It is more expensive to live in some geographical areas than others. If you are in an area with a high housing cost, for example, you may need to put a higher percentage of your paycheck toward essential expenses to cover your mortgage payment or rent.
- Goals: Your short-term and long-term goals will also affect how much of your paycheck you put into savings. For example, you may save less now because you are throwing more money toward a debt you want to pay off. This will allow you to save more in the future. Or, you may want to purchase a home in the next five years, which will require placing a higher percentage into savings to meet that goal.
I’m still not sure…
Financial planning can seem daunting to many people. If figuring out how much of your paycheck to put into savings feels overwhelming, you’re not alone. For more insights, consult with a financial professional who can review your options and help you decide what percentage of your paycheck to save. Together, you can review your financial needs and goals and establish a plan that works for you.
Start saving today
You don’t have to figure this out on your own. For expert assistance with your savings plans, contact the professionals at Safe Path Financial. We specialize in personal financial planning, to help you achieve your goals and enjoy financial freedom. Contact us today at 915-346-6789 with any questions or to get started on your plans for the future.