In whatever way you’ve just received some money, pay yourself first! Whether it’s your paycheck, commission check, bonus, lottery winnings, an inheritance – whatever – make sure to set aside a predetermined amount now and for your future savings.
I grew up with my dad always telling me, “save ya money.” And, although it was a good thought, he never took the time to explain how I should actually save my money.
I learned the hard way so that you don’t have to.
No matter your age, it’s always good to set aside money for your future. I typically suggest at least 10%, but I’ll let you decide what works best for you.
First, let’s talk income because there’s a difference between what you “make” and what you take home.
Gross is your salary.
Net is what you take home after taxes.
Example: You’ve just received a $10,000 windfall. Congrats! Your gross is the full $10k, but your net (take home) is more likely going to be around $6k. Thanks, Uncle Sam!
Whenever you make any money, always subtract at least 40% of the gross amount to account for taxes. This will keep you from getting into trouble later on with the IRS.
Back to savings! Take 10% of that remaining $6k, which is $600 and put that away immediately. You can put it under your bed (not recommended since most mattresses are highly flammable), in a savings account, in an IRA (depending on your income and filing status), 401k retirement plan (as long as you don’t go over the $18,500/year limit); the choices are plentiful and ultimately up to you.
Every pay period thereafter, continue this trend. Automate it if you can. There aren’t many employers these days that do not offer automatic deposit of your paycheck. Take advantage of this so you don’t have to see the cash go from one account to another; it’s done automatically.
Watch as your 10% contributions grow over time. Though, I suggest not looking at it too often, so you’re not tempted to spend it.
If you’re saving in an account that offers interest compounded, you’ll make money while you save it. Unfortunately, rates are pretty low these days (a whopping 1-1.99%), although the more you save, the more you earn in return.
If you’re thinking, “I wish I could, but I can’t afford it” then it’s time to change your thinking. You can do it regardless of your income and financial situation. Wouldn’t you agree that the only way to make any situation better is to invest in it, be it time and/or money?
I admit that it was hard for me at first as well. I thought I couldn’t afford it. Once I got over the threshold of trying for a couple of months, I saw just how easy it was. I even began contributing more when I was able to.
It’s okay to start small. I did it with $10, then $20, $100, and now up to $1,000/month.
I’ve done this for years now and the savings have added up quicker than I could have imagined. The best part is: you can, too! Take control of your finances now.
Banks with the Best Interest Rates:
Ally Bank: https://www.ally.com/bank/savings-account-rates/
American Express: https://www.americanexpress.com/personalsavings/home.html?extlink=ps2018=searchbranded-CampID-10705730-REF
Synchrony Bank: https://www.synchronybank.com/banking/high-yield-savings/?UISCode=0000000
Note: I personally like to save 10% of the gross number. I may have less in hand from the initial windfall, but I will have more down the road.
By Nicholas Lucin
Last updated: May 14, 2018
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