Most people agree that saving is a good thing, but they find it difficult to do. Believe it or not, it IS possible to save for short-term and long-term goals, emergencies, and even retirement. The choice is up to you.
The 70-20-10 Rule
One easy way to save is to follow the 70-20-10 Rule. Divide your income in the following manner:
- 70% for living expenses (rent, food, clothing, gasoline)
- 20% for savings
- 10% for retirement (IRA, 401(k), company pension)
- 5% for emergencies (car repairs, medical expenses, unemployment)
- 5% for specific goals (vacation, car, school tuition, a new computer)
- 10% for debt (student loans, car payments, credit cards)
If you exceed these percentages in any category, reduce your spending in the other areas. For example, if you spend 75% of your income on living expenses, reduce the amount you put into your savings by 5%. If you want to put more money into your savings, you must reduce your living expenses and/or decrease your debt.
Ways to Save
Don't know where to start? Need ideas on new ways to save money. Check out these tips.
- Saving - Getting Started
- Reduce your Housing Budget
- Reduce your Household Expenses
- Reduce your Food Bill
- Reduce your Transportation Costs
- Reduce your Miscellaneous Expenses
Helpful Tips
- Pay yourself first by putting a portion of your paycheck directly into the bank. This is the most effective way to save money. If you never see the money, you won't miss it.
- Your emergency fund should consist of at least 3–6 months of living expenses.
Supporting Content
Calculators
Test Your Knowledge
Fred and Steve save $2,000 a year for retirement (at 9% interest). Fred saves from age 22 to age 31 (9 years). Steve saves from age 31 to age 65 (34 years).
Who has more money at retirement (age 65)?
- Fred
- Steve
1. Fred
Fred will. His account will grow to $579,504. Steve's account will only grow to $470,247. How can this be? Fred invested only $18,000, while Steve invested $70,000. The answer is compound interest. While Fred invested less money, he started 9 years sooner than Steve did. Steve's money didn't have enough time to grow.
