You finally got a job that pays you consistently. No more wondering if it will be a slow tip day or wondering if you’ll receive a sales commission check this week. Welcome to the world of being a salaried employee! Now, you're probably wondering how to save money from salary?
Well, saving money from your salary should start from that very first paycheck. Don’t fall into the trap of putting it off until the next paycheck. It’s easier to start now and adapt your spending after you’ve saved money from your first check.
10 Tips on how to save money from salary
1. Budget before each paycheck
Now that you are a salaried employee you will likely have more consistent income. It’s important to have a spending plan for your income before you receive a paycheck.
Determine which budgeting method or tool will work best for you. Do you prefer writing it down in a notebook? Have you tried a budgeting app? Or are you a spreadsheet nerd like me and would excel with a spreadsheet?(See what I did there!)
Include payments to yourself, for example, Roth contributions, deposits to your savings accounts, or you can even set up contributions to your 401k through your employer before you get your paycheck. Plus you can learn more about the difference between IRAs and 401ks while you are at it.
Prioritize saving money and your true needs like housing, transportation, and food costs. Once your needs have been met you can budget for items that are necessities but are important for you to have. If your budget allows for it, leave room for fun money!
Check out the free Clever Girl Finance budgeting course if you need help getting started.
2. Set up direct deposit to save automatically
Saving money shouldn’t be a chore. In fact, you can set up automatic transfers and withdrawals from your checking account to your saving or investment accounts.
Check with your payroll administrator about having two bank accounts for your direct deposits. You may be able to allot a certain percentage or dollar amount into a second bank account making your ability to save money from your salary even easier.
3. Track your spending
One of the reasons we fail at budgeting is because we fail to track our spending. We assume we spend X amount of dollars on groceries when in reality it’s double that amount.
Tracking your spending will allow you to know how your salary is being used. Before giving up on saving money from your salary, review your spending for the last few months. Often, we find that there are areas that we can cut in order to prioritize saving.
4. Reduce your costs on the your 3 expenses
The three budget areas that make up the bulk of our transportation costs are housing, food, and transportation. Reducing costs in these areas will leave you with extra cash from your salary to save.
If you own a home, you could look into refinancing your mortgage to a lower interest rate.
Grocery expenses can be reduced by meal planning. One thing my husband and I like to do is have dinner during happy hour or we take advantage of early-bird specials.
Transportation costs can be curbed by car-pooling, buying monthly travel passes vs daily or weekly ones. And even downgrading your vehicle if you own one.
5. Evaluate current your service providers and other expenses
Are you getting the most bang for your buck? This may be the most tedious of the tips but truly a 15-minute phone call can save you money. If it’s been a while since the last time you had an insurance quote now might be the time to evaluate your service providers.
Home and vehicle insurance are not the only areas you may be able to cut expenses. Previously there were only 4 or 5 cell phone carriers. Now with prepaid plans and other alternative cell phone carriers, you may be able to cut your cell phone bill in half.
6. Tweak your utility usage
Simple tweaks might help you reduce utility costs. Check for appliances that are plugged into their outlets, even if they aren’t being used frequently. Unplugging your cell phone and other electronic chargers when not in use could lower your electricity bill.
As the weather warms up for summer or cools down for the winter, it’s common to have fluctuations in our utility bills. Before turning on the air conditioner try minimizing the amount of sun entering your home. Or perhaps turning on a fan instead of lowering the thermostat might give you the same effect.
And don't forget to check your lightbulbs! LED bulbs use more than 75% less energy than incandescent lighting.
7. Make access to your money inconvenient
When your money is less accessible, you'll find that it's not as convenient to spend it. This is simply because it's just not there for you to spend right away.
A good idea is to put your savings money in a separate bank account, that you can access when you need to. Extra points if you skip the debit card and checks option!
8. Set up roadblocks to online shopping
Online retailers have made spending money easier than ever. With one-click buy options, impulse buying has never been harder to avoid. Don’t save your credit card information and create hurdles to purchase items online if online shopping has been an issue for you.
9. Get creative with low-cost entertainment ideas
Entertainment is another area where you may be able to save money. With so many subscription services out there it’s easy to have more than a dozen. Between Amazon Prime, cable, Netflix, Hulu, Pandora, and Spotify, just to name a few it may be time to evaluate alternatives to help you slash your bills.
Consider outdoor activities like hikes or camping as alternatives to spending money. Check your local city for reduced or no-cost museum days. Socializing doesn’t have to be expensive either. Trying hosting game nights or having potluck dinners instead of meeting at restaurants.
10. Remember, it's all about paying yourself first
Paying yourself first is not about getting that cute handbag, finally spending a day at a spa, taking that much needed weekend girls trip, or even upgrading your tech gear. Paying yourself first is the process of saving for the future you.
In the future you may have a health crisis, may want to leave the workforce to raise a family, start a business, buy a house, or simply have a comfortable retirement.
Have you ever asked yourself how the future you will fund these circumstances? These reasons and more are why it's important to save money from your salary.
How much of your salary should you save
Personal finance is personal but here is a general rule of thumb for the amount to save from your take-home pay, 50% for living expenses, 30% for lifestyle expenses, and 20% for savings.
The problem with general rules is that it doesn’t take into account personal goals. If you are saving for a house, how long would it take you to save for a down payment if you are saving 20% per paycheck? What happens to other short-term goals like vacations or other long-term goals like retirement?
The key factor to your financial goals is setting up a savings plan that works for you. You don’t have to use 50% of income on living expenses. In fact, I would argue that it should be closer to 40% but again, this varies, especially if you are in a high cost of living area.
If you do not save money from your salary currently, saving 20% may be near impossible until you adjust the other two categories. Check out this calculator from Mint. Try decreasing your expenses by 1% each month and increasing your savings by 1% for a few months.
Build your savings muscle
What you do today and where you put the money from your salary will determine if you have options. Options can give you freedom. No amount is too small as long as you start.
Think about it this way, when you start an exercise routine you may not start off with 100 sit-ups, perhaps you start with 30 or even 10. The strength and improvement come from doing the exercise consistently. Each time you exercise it becomes a bit easier. Slowly you add a few more sit-ups and you’ll see improvement.
Exercising and saving money are very similar. You may not see instant or drastic results, but slow and consistent actions will lead to an improvement in your physical or financial health.
I am a bit of a money nerd and love talking about money but you don’t have to. Simplify saving by making it automatic and set it on autopilot.
Saving 20% of your money from your salary is a good goal but doesn’t have to be the end goal. In order to successfully save money, you don’t have to deprive yourself. Living frugally is a lifestyle choice and also a mindset.
Prioritize your saving and cut out the things that don’t really matter. Have fun and get creative with finding ways to spend less.
The math behind saving money is simple but not always easy but that being said, it's totally possible for you to save successfully.