Covering Your Basic Needs
It’s important to be able to cover your monthly expenses before you start saving. When it comes to monthly expenses, you should think of them as your most essential needs rather than including all of your entertainment expenses.
This means you can cover your rent, food (but not dining out for every meal), car payment, debt payments, insurance, and utilities. This does not necessarily include things like cable TV or streaming services, gym memberships, or new clothing.
Depending on the cost of living in your area, you might struggle to do this on an entry-level salary and may need to find ways to trim your expenses so you can cover the ends of the month. Hosting someone in your spare room, cooking your meals at home, cutting cable, and using public transportation can help you shift to a basic budget and save money.
Do You Have High-Interest Debt?
If you’re carrying high-interest debt like credit cards, you shouldn’t be putting a lot of money into savings each month. The reason for this is that you’re paying more in interest each month than you will earn from saving.
Instead, focus on paying down your debts and then saving, as this will put you in a better financial position and you won’t lose as much money in interest each month. Setting up a debt repayment plan can help you get out of debt faster. Following a budget is another important aspect of getting rid of debt. If you don’t already have a budget, make one.
Can You Trim Your Budget?
Look at your spending and see if there are areas where you can cut back so you can start saving earlier. Reducing discretionary spending can help put you on the right financial track. Even if you can cut $50 a week in certain categories, these savings will accumulate over time.
It’s important not to make excuses when it comes to saving money. If you’re buying new clothes every week or going on expensive vacations every year, you’re likely to find ways to save more money in your budget. It’s fine to enjoy fun and have quality things, but you can’t shortchange yourself when it comes to financial security.
Is There a Magic Amount You Need to Earn to Save?
It can be difficult to pinpoint the exact amount you need to have enough money to save. The cost of living varies from place to place, and a salary of $50,000 will go a lot further in a rural area compared to New York City or another urban area.
Don’t focus on the numbers, but start small. Begin saving for retirement as soon as you can match your employer’s contribution once you’re eligible. Then set a goal for yourself regarding the amount (either a percentage or a dollar amount) you want to be able to save each month.
It’s also helpful to keep your spending aligned with certain ratios of your income. For example, try to keep housing costs no more than 30% of your income. You should set similar goals in other categories. You might also consider following the 50/30/20 budget if you want to work on saving more money.
Updated by Rachel Morgan Coutero.
Source: https://www.thebalancemoney.com/money-needed-to-start-saving-4136468
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