Last Updated April 4, 2020
Saving 50 percent of income…is it possible? It may sound crazy, but I’m here to tell you it’s totally possible. I was able to save 53% of my income, even while living in an expensive city like New York. Find out how you can save 50 percent of your income too.
How Much Of My Income Should I Save?
Most financial experts recommend saving at least 10% of your income every month. I think that’s a good place to start, but you should definitely work on trying to increase your savings to more than that.
How much you should save every month really depends on your financial goals. So you have to ask yourself “what do I want to achieve and how long will I give myself to achieve it?”
There are three timelines you should consider:
- Short-term goals (under 3 years).
- Mid-term goals (3-10 years).
- Long-term goals (more than 10 years).
By knowing: 1) what you want to accomplish, 2) how much you will need to accomplish it, and 3) when you want to accomplish it by, will help you determine how much to save monthly.
If you’re like me and want to be financially free or retire early, I would aim to save 30% – 50% of your income.
Can You Save 50 Percent Of Your Income?
I’m here to tell you first hand that you can certainly save 50 percent of your income. I was able to save 53% of my income while living in New York City, which is a high cost of living area. I am not a special unicorn and there are many other regular people like me who have managed to do it.
Saving 50 percent of your income isn’t easy, but you definitely can do it too. So, let’s break down exactly how you can achieve your goal of saving 50 percent of your income every month.
How To Save 50 Percent Of Your Income
Make A Budget
Before you try to figure out how to save at least 50 percent of your income, you need to have a budget first. Having a budget allows you to see how much your expenses are and where your money is going.
Once you know where your money is going, it makes it easy for you to figure out where you can cut back.
If you’re just starting out, you can download this FREE Monthly Budget Worksheet to set up your budget.
However, if you want to get serious with your savings and need something a little more sophisticated, you can get my Budget Template.
My template makes it easy to see exactly what percent of your income you’re saving. It also shows you what percent of your money you are spending. This is the template I actually used to save over 50% of my income and it is the same template I use to this date.
Track Your Expenses
Once you have your budget set up, you need to track your monthly spending. You can use this FREE Daily Expense Tracker to track your spending throughout the month.
Also, by having a budget and tracking your spending regularly, you will be able to easily identify your largest spending categories. This is important information to know when deciding where you can cut back.
If you HATE writing down what you spend, you can use FREE software like Personal Capital. Personal Capital gives you the ability to track your spending almost instantly by linking your credit cards and bank accounts.
It takes about 15-30 minutes to set it up in the beginning (depending on how many bank accounts and credit cards you have), but once you set it up you can forget it. All of your transactions are loaded to your Personal Capital account, and you can see all of your finances in one place.
The only disadvantage is you have to manually enter any transactions where you used cash.
At the end of the month, plug in the numbers from your daily expense tracker (or whatever other methods you use to track your spending) into your monthly budget.
Once your numbers are plugged in, take a minute to review the numbers. Sit down and compare the actual expenses versus your budgeted expenses.
This will show you where you did well and where you may need to improve. You will also see where all your money went. My Budget Template will make it easy for you to see what percent of your income when to what expense category.
One of the most important steps to saving 50 percent of income is to reduce your expenses. If you want to figure out how to reduce your expenses, you need to know where your money is going. That’s why I recommend you first set up a budget and track your spending.
The key to saving a significant amount of your monthly income is to focus on reducing your biggest expenses before anything else. Having a budget and tracking your spending will allow you to know what your biggest expenses are.
For most of us, the four biggest expenses we have are: 1) housing, 2) transportation, 3) food, and 4) utilities. However, for some, your four largest spending categories might be different.
I have a few detailed articles that can help you figure out how to cut your housing, transportation, food, and utility expenses:
- 3 Easy Ways To Cut Household Expenses
- 9 Ways to Cut Costs Of Commuting To Work
- How To Reduce Food Budget Expenses: 9 Easy Ways To Save Money
- How To Reduce My Utility Bill: 10 Easy Ways To Save Money
Of course, by cutting expenses in your other low spending categories, you can increase your savings rate even more!
For example, to reduce my expenses, I recently moved out of my 1-bedroom condominium and decided to rent a studio apartment. When I moved, I rented out my condominium.
The income from my condominium is enough to cover my mortgage and provides a $250/month cash flow. I put that extra $250 cash flow towards my current rent. Therefore, what I pay for rent is less than what I was paying for my mortgage.
Next, when I moved, I choose not to get cable and only have the Internet. I watch Netflix and HBO NOW for entertainment.
I also sold my BMW and saved myself approximately $850/month in transportation costs. Most of the time I try to walk to work and save approximately $80/month in public transportation commuting costs. I usually opt for public transportation over taking a cab when possible.
By reducing my biggest expenses (housing and transportation), I am able to save a significant amount of my income.
Tools To Help Reduce Expenses
One of my favorite tools to help me reduce my expenses is Trim. Trim is a virtual personal assistant that constantly works to save you money.
They analyze your spending patterns to find ways to save you money, set spending alerts, and automatically fight fees. Trim also negotiates cable, internet, phone, medical bills, cancels old subscriptions, and more.
Besides cutting expenses, you need to stick to your budget. If you do not stay on budget, chances are you will not have a significant amount of money left over to save.
Get Out Of Debt
Getting out of debt is crucial to helping you save at least half of your income. The more monthly debt payments you have, the more money you need to cover your expenses every month. The more money you need every month, the harder it is to save money.
Start by paying off your highest-interest debt first. I consider any debt with an interest rate above 8% to be “high interest.” By focusing on your high-interest debt, it will reduce how much you pay in interest over the life of the loan.
The reason why I would pay off any debt with an interest rate above 8% is because the stock market has returned about 8% over the long haul. Paying off a debt with an interest rate greater than 8% is the equivalent to getting a guaranteed return of more than 8% on an investment.
Therefore, paying off your high-interest debt above 8% will most likely give you a better return on your money than investing in the stock market.
For your lower interest loans, pay only the minimum monthly payment while you are focusing on paying down your highest interest rate debt.
Once you have paid off one loan completely, take the funds that are now freed up and apply it to the next debt in line. Do this until that loan is completely paid off, and then repeat again.
I have a FREE Debt Worksheet that you can find in my Resource Library, to help you become more organized and prioritize your payment plan. My FREE Resource Library is loaded with more than 20 pages of easy to print worksheets, checklists, and money-saving tips.
- Related Article: How To Pay Debt Faster (Even If You Have No Money And A Low Income)
Speed Up Paying Off Your Debt
You can also use an app like Qoins to help you automatically pay off your debt even faster. You’ve likely heard of apps that turn your spare change into investments (like Acorns) but Qoins is an app that takes that change and uses it to pay off your debt.
Qoins will send out payments according to the schedule that you’ve set up. They also track how much you’ve paid out towards your loans and see how much of a dent you’ve put in your debt.
I highly recommend Qoins if you want to speed up paying off your debt, while making it as easy and painless as possible.
Automate Your Savings
Another important part of saving 50 percent of your income is you need to be disciplined with saving. You should always “pay yourself first” and automate your savings. Paying yourself first means you put money in your savings account before you start to pay your other bills.
I find when I put money in savings before I pay my bills I spend less. This is because the money is just not easily available to spend.
Next, automate your savings by setting reoccurring transfers to an online bank. I recommend you use an online bank because it makes it harder for you to access your money (compared to a brick and mortar bank) in case you get tempted to spend it.
Radius Bank as a good online bank to try because it:
- offers competitive interest rates,
- has no monthly maintenance fees, and
- no minimum balance requirement after $100 to open.
Also, their checking account has free ATMs worldwide.
Automating your savings makes it easier to save because you’ll never be tempted to skip saving. The money just goes into your savings account automatically before you can get a chance to spend it.
If you would like a fun way to track your savings, download this FREE Savings Tracker. I love this tool because I’m a visual person and I stay motivated when I can see the progress I make.
Here’s an example of how I use the Savings Tracker below:
Increase Your Income
Finally, the last step to easily saving 50 percent of your income is to increase how much money you make. The more money you have coming in, the more you can put towards saving and investing.
There’s only so much money you can save by cutting expenses, but there’s no limit on how much money you can make. If you’re looking for some ways to increase your income, read my detailed article “5 Ways To Increase Your Income Streams.”
I have increased my income by renting my condominium and parking spot—since I no longer have a car. I have also been working a second job for additional income. Finally, I try to consistently build my investments to increase my passive income.
Saving 50 percent of your income is very possible if you make a budget, reduce your biggest expenses, get out of debt, increase your income, and automate your savings. If you follow these tips, you will save more than ever and become financially free.
- Cutting Your Monthly Expenses: Why It Is Absolutely Necessary
- How I Saved $300,000 In 4 Years
- Net Worth By Age: How Do You Compare?
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