There is a famous proverb that says, “The art is not in making money but in keeping it.” Consumerism has grown by leaps and bounds in the past few decades. People are saving a lot lesser than what they are spending. However, if you want to live a comfortable life, saving is equally important. The best way to understand this is by imagining your retirement years. Are you ready to make compromises or want to live a decent lifestyle? Will you have enough to be financially independent? How will you manage your expenses in the absence of a steady monthly income? This article will help you if these questions bother you.
Follow the 10 percent rule
Several experts recommend saving at least 10 percent of your salary. It may not be enough but is a good starting point if you are new to savings. The first and foremost thing that you will require is determination. Make a promise to yourself that you will begin your journey onto the path of better financial health. The best thing you can do in the initial months is to save before you spend. You can open another bank account and transfer the money on your salary day. This simple technique has worked effectively for several people and will work for you too.
Opt for the 50-30-20 rule
Once you are comfortable with the previous step, you can consider moving to this one. Several experts recommend using fifty percent of your earning for necessary expenses like rentals, food, travel, etc. You can use thirty percent of the remaining for other expenses like shopping and holidays. Lastly, you can save the remaining twenty percent. However, if you have a significantly high salary, you can save more and vice-versa.
Save for your financial goals
Having financial goals is like having a destination for your journey. It will give you more clarity about how much you need to save. We all have financial goals, but it is tough to accomplish them without a solid plan. To get started, think about three kinds of financial goals – the ones you want to accomplish within a year, a decade and lifetime goals. For instance, you may want to clear your taxes or credit card debt in the next year. For the next ten years, you may want to buy a car or invest in real estate. Your lifetime goals should be to save for your retirement.
Saving for the first two kinds of goals is pretty straightforward. You can start saving depending upon the time you have. For instance, if you want to buy a car worth $20,000 after five years, you would have to save $334 every month. Saving for your retirement is a little complex. Ideally, you need to save about 10-15% of your monthly income for your retirement. However, you can opt for your employer-sponsored 401(k) to make it easier on your pocket. You can simply save 5% of your income in the program and earn another 5% from your employer. That makes it an easy 10%.
Apart from this, you must have about 3-6 months of your salary in your savings account. This will safeguard you during emergencies such as unemployment or health emergencies.
Where should you save your money?
Depending on your goals, you can put your money in different places. For instance, you can start saving in a savings account for your immediate needs. This will ensure liquidity for your immediate needs. It is advisable to put your emergency fund in a separate bank account to ensure that you don’t touch it unless absolutely necessary. For your long-term needs, you can invest your money in other investment instruments. Stocks are a good option to earn good returns over the long-term. If you do not have the time to follow the stock market, you can invest in mutual funds. They are managed by experts who have an in-depth understanding of the stock market. If you are averse to risks and want a safer option, you can opt for bonds. However, both these options will lock your money for a long time. Thus, it will make sense to consider them only when are convinced of them.