Saving money from salary is both a dream and a puzzle for many people. They are often convinced that they have to increase their income in order to start saving.
However, that is a mistake. The advantage of getting into good habits of saving from the start is that your savings level will increase with time.
If you still don’t know how to save money from salary, then it’s time to use the tips below
Step 1: Set goals
Setting the goal of saving just to have savings on your account is not motivating. On the other hand, saving so that you can accomplish something is much more motivating.
To succeed in saving from your salary, you need a specific goal to achieve. But what are goals? Goals are nothing but the desires of life.
Your top 3 desires of life are your goals. Interesting? I picked up this concept from Chris Croft’s linkedin learning course
That way, you will be more motivated to reach them.
Step 2: Know your take home salary.
This is one of the questions that arise when people decide to start saving.
First, it is necessary to know how much you earn. Doing this survey is essential for you to have an accurate idea of how much you are spending per month. Having this notion, you can know what expenses can be cut or decreased.
Many people appeal to apps that do these accounts automatically.
But, at this first moment, it is important that you study your earnings. Therefore, it is important to calculate the gross salary (full amount received) and the take home salary (what is left after having tax deductions).
The most common mistake is NOT knowing your monthly income.
That way, you end up spending more than you have, and it becomes more difficult to know how to save.
Step 3: Study your expenses.
In order to understand how to save money from your salary, you need a precise action plan.
This is through creating a budget which will point on your expenses, and also help you determine your saving capacity. Your budget should include the following components:
I. MANDATORY EXPENSES
To start, you will focus on the compulsory expenses (rent, insurance, etc.), which are taken from your account each month.
List these expenses and indicate the corresponding amount. Be specific about the amounts, check your invoices rather than writing down approximate information.
“I am using the software Toshl Finance – I enter my daily expenses every day using the mobile app, it syncs with desktop app, and generates a monthly expense chart where I could easily spot out over spending”
II. VARIABLE EXPENSES
Analyze 3 months of your spending trend using the app, the fixed expenses and the variable expenses can be easily defined.
After the fixed expenses, it is important to determine the amount of variable expenses such as food, transportation, and children’s expenses and gas costs. List all of these expenses.
You shall then use the excel sheet, log your complete expenses. And have a look of how it goes!!!
III. EXCEPTIONAL EXPENSES
Life is made up of unexpected events that will directly impact your budget. An essential household appliance that breaks down, the car that needs to be repaired, etc.
If you have faced extraordinary expenses in the past months or plan repairs in the coming months, mention this in your budget.
By distributing your salary on these lists, giving priorities according to the arrangement above, you will discover holes that have been wasting your money that could have been a surplus to save. Working with this strategy for several months, you will inevitably reach a better financial position.
Step 4: Limit expenses
Step 5: Set a saving target
Inspired from the book ‘The Richest man from Babylon‘.
The “10% savings” rule is simply a starting point for those looking on how to save money from salary. Here, you take 10% of what you earn and save it for your retirement.
This rule is ideal for young people who have secured a well-paying job. Although 10% may seem little to start, the important thing is that you get into the habit of saving.
Remember that this 10% figure refers to your monthly net salary.
Therefore, if you receive $ 4,000 per month, after paying your bills and spending on leisure, you should save $400. However, this is not a rule, but a recommendation.
Step 6: Open Savings Account
Open a savings account for each goal. Sounds weird? May be, but this is a proven methodology.
Money is a mesmerising asset. The more you see, the more it motivates to spend. That’s why it is recommended to send the targeted amount of each goal per month to it’s appropriate savings account.
Assume savings account is a money box.
One money box for One goal. Sounds logical?
Step 7: Avoid credit cards
You can choose to leave your cards at home and use them only for online purchases. Maybe never use them.