This month, we’re bringing you bite-sized servings of financial literacy. Each week, we’ll introduce you to a core concept and map out a fun and easy daily action item. This is our second week in the series.
Our topic for this week is saving! Saving might sound boring, but it is actually a secret superpower. Almost all financial goals involve saving, so mastering this skill will get you far.
What is saving?
Saving is the act of setting aside any money that you earned and didn’t spend in a given month — ideally in a separate high yield savings account.
Why do I need to save?
Saving helps you afford the expenses in life that you don’t fit into your monthly budget. This includes emergency costs like a car repair or an unexpected medical bill as well as larger expenses such as a car or home down payment. To achieve your goals, you often need these bigger sums of money, and the only way to get them is to save!
How much should I be saving?
That’s a good question and there is no one-size-fits-all answer. It really depends on your goals and the boundaries of your budget. (Personal finance is personal, after all).
If we do have to generalize, a good savings rate to shoot for is 10%-20% of your gross income. To calculate 20% of your gross monthly income, divide your annual salary by 12, and then multiply that by 0.2. Refer back to your budget to determine if you can save that much. If you can’t, how about half that amount? That’s still 10%! The key is to find a starting point, however small it may be
How do I start saving?
Well, I’m glad you asked. Since you already figured out how much you can save, the next step is easy! Automate your savings by setting up a recurring transfer from your checking account to your saving account in accordance with your pay schedule. Or if you can, split your direct deposit so that some of your paycheck goes directly into your savings account every time you get paid!
To continue learning more about saving, here is your financial literacy “homework” for the week:
Saturday: You read this blog post — you’re done for the day!
Sunday: Setting up systems makes saving a whole lot easier. Listen to how a FinGym client did it in The One Where Claire Saved a S*** Ton of Money.
Monday: It all starts with an emergency fund. Read How to Build an Emergency Fund (And Why You Need One).
Tuesday: Planning out “no spend days” is a great way to avoid making impulse purchases and keep more money in your bank account. Use this No Spend Day calendar to keep track of how many days you spend zero dollars.
Wednesday: Sometimes we do actually need to spend the money we saved up. Listen to Using Your Emergency Fund with Bevin & Victoria.
Thursday: Where is the best place to save? Read the Pros and Cons of a CD vs. High-Yield Savings Account.
Join us next week for an introduction to debt!