Saving is a vital component of financial planning. However, more than half of Americans are saving too little and do not have an accurate grasp of their spending habits.
A recent survey from Intuit Mint Life found that, in 2019, 59 percent of Americans were living paycheck to paycheck and 65 percent didn’t know how much they were spending on a monthly basis. The situation is similar in Canada, where the annual BDO Canada Affordability Index indicates 53 percent of Canadians are living paycheck to paycheck and 25 percent say their debt load is overwhelming.
While there’s no magic formula to save money, and the amount of money one should save each month depends on how he or she wants to live now and in the future, a handful of strategies can help people save more money each year.
• Follow the 50/30/20 rule. The popular 50/30/20 rule advocates for allocating 50 percent of your budget to essentials like rent, food and housing, 30 percent for discretionary spending and 20 percent for savings. Many people cannot save 20 percent of their income. In such instances, people can make a concerted effort to save 10 percent of their take-home pay.
• Build an emergency fund. The credit reporting agency Experian recommends consumers keep between three and six months’ worth of expenses in an emergency fund. The fund should cover expenses on the absolute necessities paid each month, like utilities rent/mortgage and groceries.
• Set goals. Savings goals can help a person stay on track and provide motivation to put money away. Establish separate savings accounts for each goal to reduce the temptation to spend. For example, if the goal is to save more for vacations, then a person can open an account where funds are used exclusively for vacations.
• Automate with your employers’ help. Certain employers allow workers to direct deposit a paycheck into more than one bank account. It’s easy to request the payroll manager put 10 percent or 20 percent of a paycheck into a savings account while the remainder is deposited into a checking account. Automated deposits can help individuals get accustomed to living on less.
Saving money isn’t always easy, but with goals and certain strategies in mind, it’s possible for individuals to grow their savings and secure their financial futures.