How to save money from salary
If you’ve recently secured a new job, have been given a raise or want to save for something specific, you might be thinking about saving money from your salary, or asking yourself the question, “how much money should I save from my salary each month?”
The answer to this question will differ from person to person, and on whether or not you have specific savings goals. If you’d like to start saving money from your salary, here are a few tips, tricks and methods you should consider.
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How much of my salary should I save each month?
Many experts suggest adopting the 50/30/20 approach. This approach says that 50% of your monthly salary should go towards expenses, 30% towards fun and 20% should be saved. While this is generally a good rule of thumb that can help you save, the problem is that personal finances are exactly that – personal.
General rules of thumb don’t take into account personal goals and other life events, like weddings or once-in-a-lifetime holidays. You might also find it difficult to stick to this particular ratio if you have specific savings goals, or if your monthly income tends to differ from month to month.
In terms of how much you should save each month, the best amount is simply what works for you and what is likely going to help you achieve your goals. There are many ways to go about setting up a savings plan, but the best thing to start with is your monthly expenses, which will allow you to figure out your budget and help you identify how much you have to save. It’s vital that you stick to saving a manageable amount each month so you don’t struggle day-to-day and adversely affect your lifestyle. If you don’t have much spare cash each month, check out these ways to save money on a tight budget.
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How to save money from salary every month
If you’re finding it difficult to reach your savings goal, the simple approach you can take is ‘earn more or spend less’. This serves as a handy reminder that in order to truly save effectively, you must either cut back on certain things or pick up a side hobby that will allow you to earn extra cash.
9 tips on how to save money from salary
To make the process of saving from your salary easier, you might want to follow these steps:
- Break down your payslip
- Track your expenses
- Create a budget
- Spot where you can save
- Pay off existing debt
- Avoid impulse spending
- Prioritise yourself
- Reduce your energy consumption
- Amplify your income
Let’s look at each of these steps in a little more detail:
1. Break down your payslip
Before you can start to think about saving, you need to first establish if it’s even possible. The best way to do this is to take a look at your payslip and see what you have left after all of your monthly expenses.
If you’re self-employed or don’t know exactly how much you’ll earn each month, this can be more difficult. To work out what you can save if you’re in that situation, you could use your previous year’s earnings as an average. Alternatively, you could choose to tailor your savings on a rolling monthly basis, depending on what you have earned.
2. Track your expenses
A great way to weigh up what you could save is to track all of your expenses for one month. Make a list of your bills and subscription services, keep all of your receipts and then divide them into two columns – needs and wants.
For example, your water, electricity and gas bills are not something you want, but rather something that you need to live. On the other hand, expensive dinners out and random purchases are often something you buy because you want them.
By putting your monthly expenses into these two columns, you’ll be able to identify where you can save money rather than splashing the cash on unnecessary items. You can do this yourself by using something as simple as a pen and paper, or by downloading an app designed to do it all for you.
3. Create your budget
After tracking your expenses, you should be left with the bones of a budget plan that will essentially act as your savings bible in terms of showing you what you can and can’t afford to save and spend.
4. Spot where you can save
You don’t have to completely eliminate the fun things from your life in order to save money – you can do this simply by becoming more savings savvy. Look for weeknight discounts and deals offered by your favourite restaurant, use 2 for 1 codes when you go to the cinema and look out for loyalty scheme rewards at your local supermarket.
However, if you’re still struggling to identify where you can save some money, you might have to dig deep into your budget to find a gap, or go without some of your usual luxuries for a while.
5. Saving vs. paying off debt
Before you start to save, you might want to weigh up saving vs. paying off any existing debts you have. While it can feel much nicer to have a reassuring nest egg, you might prefer to use your surplus money to pay off your debts and start from a clean slate. Check to see if you’re paying more in interest on your debt than you’ll earn on your savings – that’s often a sign that you may want to consider paying off your debt first.
6. Avoid impulse spending
We’re all guilty of over-indulging from time to time, but to save effectively, you’ll need to exercise some discipline. A great tip for avoiding impulse buying is to sleep on it. If you find yourself tempted by the latest gadget or convinced that you need to book a holiday, leave it for a week or so before making your final decision. It often turns out that you don’t need it quite so badly after a few days.
7. Prioritise yourself
You might be familiar with the phrase ‘pay yourself first,’ and that is true where saving is concerned. If you decide to adopt the 50/30/20 rule, for example, you can make saving automatic by setting up a standing order.
8. Reduce your energy consumption
You can do great things for both your budget and the environment by looking for ways to reduce your energy consumption. Turning off all appliances at the socket when they’re not in use, reaching for a jumper instead of turning on the heating and taking shorter showers are all incredibly easy things to do that will help save you money.
9. Amplify your income
If you happen to have spare time and a desirable skill, you can put them to use to amplify your income. Whether it’s dog walking, DIY services or baking, selling your services in your spare time could even lead to you uncovering a new career. Alternatively, you could take on temporary weekend work or part-time roles to boost your income and help you save that little bit extra from your salary each month.
Where should I save money from my salary?
Again, the choice is ultimately yours when it comes to where to save your salary. You might want to consider online savings accounts, which can be a great way to start saving because they offer an easily accessible service that you can use from anywhere in the world, at any time.
Online savings accounts can often provide a larger variation in terms of choice as opposed to brick-and-mortar banks, with more competitive rates of interest and an increased focus on ethical banking. Important factors to consider when choosing the right savings account for you are:
- Does this account have any restrictions that won’t work for me?
- Does the account allow me to top up whenever and however I want?
- Will the interest rate on this account help me reach my savings goals?
Some of the most popular types of savings accounts include fixed rate bonds, notice accounts and easy access accounts.
Fixed rate bonds can be a good option if you have a lump sum of money you can lock away for a set period of time to earn a competitive rate of interest.
Easy access savings accounts, on the other hand, offer more flexibility, allowing you to access your savings whenever you like. However, they tend to offer lower rates of interest.
Notice accounts are almost a hybrid of fixed rate bonds and easy access accounts. They allow you a degree of flexibility in that you only need to give a short notice period, typically between 30 and 90 days, to your bank to access your savings – plus they also provide competitive rates of interest.
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