Are you paid on salary? This means you have a fixed amount of money you are paid throughout the year and you are typically paid bi-weekly or monthly by your employer.
In terms of budgeting, your job is easier than average because you have a stable amount of money to work with. Therefore, it is easier to decide how much money you will save, but also set aside money for bills.
Generally, trying to save while on an unstable income is harder than if you are paid on salary. If you are paid on commission or tips, it is difficult to plan for savings because you don’t always know how much you have coming in or if it will be enough to cover your monthly expenses.
Speaking from experience, it is typically easier to budget when you are paid on salary. I was a teacher before becoming a blogger and stay-at-home mom and in my district and many others, we are paid on a salary scale. Working as a teacher for thirteen years, I was able to know how much money I would have bi-weekly and as an added bonus I was on a fixed pay scale which meant I got pay raises every year according to our teaching contract.
During my teaching time, having a steady income made it easy to save. In terms of budgeting, I knew how much money I had coming in each month and it was easy to plan for savings, investments, and retirement. Not to mention, I was also able to set up an emergency fund.
However, if you are asking, “How can you save money from your salary.” you have come to the right place. This post will outline tips and examples of how to save money from your salary.
What you will learn in this post:
- how to automate savings
- how to save for retirement
- how to invest
If you are wondering how to save money from your salary, use the tips below.
Here are six tips to save money from your salary:
#1 Make it automatic
The easiest way to make savings from your salary automatic is to set up a direct deposit from your paycheck. Typically your HR department can help you with this.
Once the money is deposited, you can automatically have money set aside in separate sinking funds. These are funds you label for specific savings goals such as “house down payment” or “emergency fund.”
Talk to your bank and set up funds that meet your savings goals. Also, consider a bank with a higher interest rate.
One excellent choice that beats the national average is CIT Bank. They are currently offering a 2.4% interest rate on their savings builder. If you don’t plan on touching the money for a while, an online bank is a great choice. They have lower overhead costs and are able to offer higher annual percentage yields (APY) rates.
#2 Pay yourself first
Many ask, how can I pay myself first when I have taxes and bills to pay? The best way to save money from your salary is to find a tax-sheltered savings plan and have the money automatically withdrawn from your paycheck. Again, check with your human resources apartment to set this up. Don’t forget to check if your employer will match your contribution.
If not, it is still better to put money away tax-free.
I also recommend writing out a list of questions you have for your HR department so you can be ready to take action when you make that phone call or meeting.
How this works: The typical accounts are 403b and 401k depending on where you work. The account allows you to automatically put money away before you see your check. Since the money isn’t taxed your lower paycheck amount is not that noticeable. You can see the contribution on your paycheck stub.
If you feel like you cannot afford this, try to start small and slowly increase the percentage of your contribution as time goes on and your pay increases.
This may sound complicated; however, all you need to do is fill out a form with your HR department and you will be good to go.
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#3 Save your raises
The key to growing money over the years from your salary is to pay yourself first and increase your savings amount as your pay increases. If you continue to live the same lifestyle as you were before the pay raise, you will not miss the extra money you are now stashing away. Also, try living a frugal lifestyle to save even more.
For me, being a teacher meant a consistent salary. If you are lucky enough to have an automatic raise each year, then put the extra money away or at least some of it if you can afford it.
Nonetheless, if you get raises now and then, use this same idea. Generally, most people do not miss the money. Personally, I would increase my percentage contributed to my 403b. If you start early you can take advantage of compound interest and possibly retire early.
If you have not had a pay raise in a while, make a list of all the things you do for your company and set up a meeting with your boss. You deserve a pay raise so do not be afraid to ask for what you are worth.
#4 Set up sinking funds
Sinking funds are separate accounts set aside for specific savings goals. The best way to set up a sinking fund is to contact your bank (some will allow you to set these up online) and have money taken out on payday. Examples of sinking funds:
By using the sinking fund method, you are tricking your brain into saving money. Since you specify what the money is for, you are less likely to dip into the savings later.
If you are having a hard time budgeting, check out the free service.
#5 Save for retirement
If you have not yet started saving for retirement, now is the time. Many people rely on social security for retirement. Yet, you cannot withdraw from social security until you reach age 62 (source Social Security Association). Yet, by taking advantage of social security payments at a younger age, you will get less money in your monthly payments.
If you have plans to retire before then, it is best to start saving for retirement on your own. Not to mention, social security may not be enough to cover your expenses in retirement.
Planning for retirement is an entire post on its own. However, you can ask yourself a few questions to decide how much money you will need and try to save accordingly.
What are your expenses for retirement? Even if you have paid off your mortgage, you will still pay property taxes. You must also consider food, utilities, entertainment, medical, clothing, and other miscellaneous bills. Will you have enough money? Personally, I like to overestimate when it comes to retirement expenses.
Many companies make it extremely easy to save for retirement by allowing you to set up a 403b or 401k and have it deducted automatically from your check. If you are in your twenties start now and watch your money grow over the years.
If your company does not offer a plan, you can still save for retirement by opening up a Roth IRA and putting money away after taxes. The benefit to this is you will not be taxed on the money when you decide to withdraw and your tax now is at a lower tax rate than if the money is taxed at retirement – which will most likely be higher. If saving pre-taxed is not an option, a Roth is an excellent choice.
#6 Start investing
Use your salary to invest and make more money. If you are new to investing and don’t have much money, try Swell investing with only a $50 minimum to get started or you can sign up for person capital but the minimum investment amount is higher. If anything, sign up for personal capital for their free retirement planner.
Betterment is another great option for beginners but the minim is higher or you pay a higher fee. These are all great choices that use robo advisors which makes it easier for you plus you don’t have to pay a financial advisor and you can set your account up from home.
Use your salary to invest money in the stock market and earn money. You can set up automatic monthly investment amounts by linking your bank account to your online investing choice.
#7 Take advantage of compound interest
Start saving while you are young and watch your money grow. By the time you retire, you will have a bright financial future.
Compound interest example:
If you earned 5% interest from your bank and invested $100, at the end of the year you would have $105. If you left your $5 earned in your account, at the end of next year you would have $105 X 1.05 = $110.25 because not only did you earn money on the initial $100, but you earned interest on your earned $5 as well, which also earned interest.
Make sense? Basically, money that was left in the account or reinvested is earning you more money.