For instance, you might set a goal to save 10% of your income. [2] X Research source For a more aggressive savings goal, go for the 80-20 rule, where you save 20% of your income. [3] X Research source
You should aim to have your overall monthly spending not exceed what you bring in. Emergencies and unforeseen occasions happen, but try to set a goal of not using your credit card to cover non-necessary items when your bank balances are low.
Such expenses may include your mortgage or rent, utilities, car payments, and credit card payments, as well as things like your groceries, gas, and insurance. Set up your bills on autopay to make them easy to prioritize. This way the money comes out of your account on the day the bill is due. Set up autopay only if you’re sure you’ll have enough money each month to pay those bills in full.
Don’t forget your longer-term expenses. Check things like insurance policies, and see if there are places you can scale back. If you are paying for collision and comprehensive insurance on an old car, for example, you may opt to scale back to liability insurance only. [8] X Research source
If you do exceed your budget goals, don’t beat yourself up. Use the opportunity to see if you need to revise your budget to include new expenses. Remind yourself that getting off-target happens to everyone occasionally and that you can still get to where you want to be.
This savings should be separate from your 401(k) or any other investments that you have. Building a small general-savings balance will help you protect yourself financially if an emergency comes up, such as a major repair on the house or unexpectedly losing your job. Many financial experts recommend a target savings of six months’ worth of expenses. If you have a lot of debt you need to pay down, aim for a partial emergency fund of two months’ expenses. Then focus the rest of your cash on your debt.
If you have a short-term loan (a car loan, for example), pay that down, too, as quickly as possible. Such loans can become very expensive if not paid off in full and on time.
If, for example, you finish paying off a credit card, take the amount you were putting toward that card and add it to the minimum payment you’ve been making on another card or a student loan. The point is that you want to eliminate all recurring, long- and short-term debt as soon as possible so that you can live interest-free.
Keeping your savings separate from your checking account will make it less likely that you’ll spend your savings. Savings accounts also tend to pay a slightly higher interest rate than checking accounts. Many banks will allow you to set up an automatic transfer between your checking and savings accounts. Set up a monthly transfer from your checking to your savings, even if it’s just for a small amount. That’s a relatively painless way to build your savings.
If you get a raise, invest the difference between your budgeted salary and your new salary directly into your savings. Since you already have a plan to live off your old salary, you can use the new influx of cash to build your savings.
Bulk stores can be useful for buying things you use a lot or things that don’t expire, such as cleaning supplies.
