Lauren Rouse* age answers the question ‘How much of your income should you save?’
Payday is a big day. But once the money rolls in, it’s easy to be tempted to spend big on that item on your wish list or buy that more expensive gift.
Learning how to save more money is all about changing habits.
So how much should you allocate to savings versus spending on each paycheck?
How to save money with the 50-30-20 split
There are countless funding methods to split your income, but the folks at Money.com think it’s a simple rule.
Divide your salary with a 50-30-20 breakdown.
50% for living expenses, 30% for current expenses and 20% for savings.
It is recommended that this split occurs after taking into account things such as superannuation and taxes.
For example, from your full paycheck, it’s a good idea to match the amount of super that your employer gives as a voluntary contribution.
Then divide the income from there.
The tax is usually deducted automatically in Australia.
But if that’s not the case, like when you’re getting paid as a freelancer or reporting some other type of income, it’s worth leaving some room for the tax you’ll have to repay.
What to do with that 20%?
So you’ve managed to allocate 20% to savings, but what should you do with it?
Adam Goetz, president of the MassMutual Advisors Association, told Money.com that creating an emergency fund is a great place to start.
Goetz recommends that people have 6 months of expenses recorded in a separate account, in case something unexpected happens.
Financial planner Tania Brown also recommends dividing your savings even further.
She suggests having one account for crisis coverage and another for non-essential short-term expenses, like vacations or new furniture.
The idea is that by having separate savings accounts for expenses, you won’t be as tempted to dip into your emergency savings.
For those who are serious about saving, it may be worth setting up as many savings accounts as needed.
“As many ways as you can have specific uses for the accounts will give you peace of mind,” Goetz said.
It’s all about getting into the habit of saving.
Aiming for 20% is a good benchmark, but even the smallest contribution to a savings account is a good start.
If you’re new to savings routines and want to start small, Fund Instagram Account She’s On The Money has very simple, easy-to-follow templates to guide you to small savings goals like $5,000 and 10 $000 over 12 months. period.
Try them too.
It can’t hurt!
*Lauren Rouse is a writer at Lifehacker Australia.
This article was first published on lifehacker.com.au.