How to Save Money From Your Salary
When times are tight, it can feel as though putting even a few dollars away every month is next to impossible. How can you save money when you have a low salary and so many expenses?
There are ways to get that needle moving in the right direction — even for those who are new to working full time and living on their own. Here’s a look at some simple strategies that can help you save the maximum from your paycheck.
Key Points
• A good way to save more from your salary is to leverage an employer match in a 401(k) plan.
• Based on the 50/30/20 rule, aim to save around 20% of your monthly take-home pay to fund your goals.
• Consider putting a budgeting app on your phone to help you track spending and stay on budget.
• To consistently save from your salary, automate savings with a recurring transfer or split direct deposit.
• Allocate savings to both short- and long-term financial goals, using appropriate accounts and investments for each.
Taking Advantage of the Employer Match
Concerning but true: One in five adults ages 50-plus have no retirement savings, and more than half (61%) are worried they will not have enough money to support them in retirement, according to a 2024 survey by the AARP. Thankfully, it’s never too late — or too early — to start putting money aside for retirement. Enrolling in your company’s 401(k) plan can be a great place to start, and they may even offer matching contributions.
Maximize Retirement Contributions
Even if retirement feels a long way off, a great way to save more from your salary is to contribute as much as you can to your 401(k). That way, you let compound returns — when the money you earn on your contributions gets reinvested and also generates earnings — have an opportunity to work in your favor. The earlier you start saving for retirement, the less you’ll need to save each year to reach your goal.
If your employer offers a match, it’s a good idea to contribute at least enough to maximize this benefit, which is essentially free money. For example, let’s say your employer offers a 50% match up to 5% of your salary and you make $60,000. You would contribute $3,000 over the course of the year, and your employer would kick in another $1,500. Failing to contribute at least 5% means you’re leaving money on the table. This match significantly increases your retirement savings without additional effort on your part.
You might also consider increasing your contributions over time. Many employers allow you to automate annual increases, which helps you save more as your salary grows.
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Preparing a Budget and Following It
Creating a realistic budget ensures that you allocate your income wisely and consistently save a portion of your salary. Without a budget, it’s easy to overspend and neglect your financial goals.
If the idea of a budget seems daunting — or past attempts have been less than successful — it might be because your approach to budgeting is too complicated. It’s not necessary to create a complex set of spreadsheets. In fact, when you’re new to budgeting, a simple approach often works better.
One easy budgeting framework you might consider is the 50/30/20 rule. This approach streamlines expenses into three categories so you don’t have to monitor every single expenditure to make it work. Instead, you divide your take-home pay (what you make after taxes are taken out) into three main categories: needs, wants, and goals. Here’s how it works.
• Put 50% of your money toward needs: This includes housing, utilities, groceries, transportation, insurance, prescription medications, minimum payments on credit cards and other debt, and any other expense you have to cover.
• Put 30% toward wants: Here’s where everything from vacations to fancy coffees can come in. If it isn’t essential, it goes into this chunk of your budget. You might look at what you are currently spending on wants and see if you can find places to cut. Are you paying for streaming services you rarely watch? Are you a member of a gym you never go to? Could you cook one or two more nights per week and spend less on takeout? It’s all your call — but these costs all must fit into the allotted amount of money.
• Put 20% towards goals: This category allows you to siphon off some of each paycheck to build your emergency fund, save for other short-term goals (like buying a car or going on vacation), and fund your retirement account. If you’re carrying high-interest debt, you’ll want to use some of this money to pay it down by making payments beyond the minimum.
• Feel free to tweak: The 50/30/20 guideline is just that — a guideline. You may want to adjust the breakdown if the cost of living is particularly high in your area, and you need to spend more than 50% of your take-home pay on needs. On the other hand, if you’re in a hurry to pay down debt, you might want to cut back on your wants spending to make it work. The key to budget success, however, is to stick with it. So you don’t want to come up with a spending plan that is so austere you can’t maintain it.
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Allocating Savings To Short- and Long-Term Goals
The goals category of your budget should include both short- and long-term goals. Here’s a look at how they differ:
• Short-term goals: These are things you want to accomplish within the next several months or years, such as building an emergency fund, going on vacation, or making a major purchase. CDs, money market accounts, and high-yield savings accounts can be good choices for short-term goals.
• Long-term goals: These goals are generally five or more years off and might include saving for retirement, a home purchase, or a child’s future college education. Consider investing the funds you set aside for these goals, since there’s time to withstand market fluctuations.
Using Budgeting Tools to Track Your Spending
Once you have a sense of how you want to divide up your salary and increase your savings, you might lean on some tools or apps to help you stay on track. Your bank may offer a free spending tracker as part of their mobile app. If not, consider downloading a separate budgeting app. Some popular options include:
• YNAB (You Need A Budget): This app allows you to set specific savings goals, then keeps track of your spending and saving and charts your progress.
• PocketGuard: This tool connects to all of your financial accounts and syncs transactions in real-time, helping you stick to your budget.
• Goodbudget: Based on the envelope system of budgeting, Goodbudget divides up your salary into categories, then monitors your spending and helps you stick to the plan.
Automating Your Savings and Payments
Once you come up with a framework for how much you will spend and save each month, it’s a good idea to put as much of the plan on autopilot as possible.
Setting up autopay for your regular monthly bills, for example, eliminates the risk of missing payments and racking up late fees. In addition, you may want to consider automating your savings — this way, you won’t have to remember (and, quite possibly, forget) to transfer some money from your salary to savings each month, or be tempted to spend that money.
There are two different ways to automate savings. One is to split your direct deposit into two accounts. For example, you might have the majority of your paycheck go into your checking account and a smaller percentage into a high-yield savings account. If a payroll split isn’t an option, you can set up an automatic transfer from your checking to your savings on the day your paycheck clears. This way, the money gets whisked away before you have a chance to spend it.
The Takeaway
A savings plan doesn’t have to be complicated — or painful. In fact, you can start saving more from your salary by making just a few simple changes. These include: making sure you are putting some of your paycheck into your retirement plan at work (at least up to any employer match), coming up with a basic spending plan (such as the 50/30/20 breakdown), and putting your savings on autopilot. Before long, budgeting and saving will likely become a habit you don’t even have to think about.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
FAQ
How much of my salary should I save every month?
A common recommendation is to save at least 20% of your take-home salary. This 20% includes emergency savings, retirement contributions, and other investments. However, this is just a guideline. If you have a high income and relatively low expenses, you may be able to save much more than 20%. If money is tight, on the other hand, you might need to start with a smaller percentage and gradually increase it over time.
How big of an emergency fund do I need?
A general rule of thumb is to have three to six months’ worth of living expenses set aside in an emergency fund. To come up with an exact amount, tally up all of your fixed expenses (e.g., rent/mortgage, utilities, groceries, transportation, debt, etc) and multiply that number by three or, ideally, six. Having that big of an emergency fund can help you cover your monthly bills in the event of a financial set-back without running up debt.
Should I pay debt instead of saving?
It depends. If you don’t have a solid emergency fund, you’ll want to prioritize saving over paying off debt. After that, you generally want to prioritize paying off high-interest debt (such as credit cards) over saving, since the interest rate you’re paying on your balances likely exceeds what you could earn by saving or investing. If your debt has a relatively low-interest rate, however, it’s a good idea to balance paying it off with putting money into savings.
What does an employer match mean?
An employer match is when your employer contributes to your retirement savings plan, such as a 401(k), based on how much you are contributing, up to a certain limit. For example, if your employer offers a 50% match up to 5%, it means they will contribute 50 cents for every dollar you contribute up to 5% of your salary. Any contributions you make above 5% of your salary will not be matched.
What is the max amount my employer is allowed to match?
Employer match maximums vary by company. The average 401k employer match is 50% partial match contributions up to 4% to 6% of an employee’s salary.
While companies can set their own matching policies, keep in mind that the internal revenue service (IRS) sets overall contribution limits for retirement plans, both for employees and for combined employee/employer contributions. These limits are updated every year.
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SoFi members with direct deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.
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