After your paycheck has been deposited and your bills have been paid, you're probably all set to spend some cash. But, there's that nagging question in the back of your mind: "How much money should I save?" Whether you're a shopaholic or a frugal spender, it's well worth your time to set some money aside for future investments. In this guide, we'll explain how to maximize your savings without feeling strapped for cash!
The Magic Number
While everyone has different income levels and budgets, saving 20 percent of your paycheck is the golden standard for healthy savings. This formula works well for many, but you'll have to do some number crunching to determine if it's right for you. Those in the higher income brackets may feel comfortable saving even more, while those with limited incomes may have to lower that percentage significantly. The important thing is to keep saving, and every little bit will add up with time.
Establish Your Goal
So, why are we saving 20 percent? This is the recommended figure to achieve financial independence later in life. Sure, your golden years may be well into the future, but you can accumulate quite the sum of money if you get into the habit of saving 20 percent of each paycheck. Another figure to keep in mind: Multiply your annual living expenses by 25 to determine the lump sum that you need for financial independence. While that figure may be daunting at first, remember that you have decades to build up your financial reserves. In fact, experts estimate that it takes just over 40 years to reach those goals. And what if you can't reach that 20 percent figure? Any saving is better than no saving, so do what you can. You can also look into options like title loans and cash advances for extra money.
Maximize Your Savings
Is your savings account making the most of your hard earned money? You may want to look into tax-advantaged accounts to maximize your interest. For example, tax-sheltered retirement accounts can provide a lot of bang for your buck. A Roth IRA might be the most popular example. That's because the money that you invest into your Roth IRA comes back tax-free! Plus, many employers will match your contribution up to a certain amount. Check with your company to see if this service is offered, and if it is, take advantage of it! For example, if your company matches your contribution up to 5 percent, you only have to save 15 percent to reach that 20 percent goal!