HOW MUCH MONEY SHOULD I SAVE PER MONTH?

Listen to this:

“You know I am trying to go back to school and better myself. I don’t want to be stuck in this job forever. But don’t count on me doing it right now though because I don’t want to give up the consistent hour and pay.”

I am sure you might have heard the same thing either from your friends or your family members. This is just an excellent example of someone who already fail in the “Rat race.” As defined in the book “Rich dad Poor dad” written by Robert Kiyosaki, the “Rat Race” is a frustrating hard-to-break financial lifestyle.As an employee work hard for the employer for promotion to increase paycheck, their expenses increase as well. More spending means more debt. The employee will further tight into their job and be relying more on their paycheck. As the race continues, they will work harder trying to pay off debts.

To avoid living your life like a “Rat Race”, we need to learn how to save.

Baby step

If you just started, the easiest way is to set up an automatic transfer on your bank account. Almost anyone can start by saving $5 a day. There are people out there who do not make enough money to put towards saving because it goes to kids, mortgage, foods,… It is still possible to save because you can start by saving a small amount. If I put $5 a day (which is roughly about $20/ month) towards my saving with a 0.01% interest rate, at the end of five years I will have:

If you have Wellsfargo bank, here is how you can do it:

Step 1On your home account page, select “Transfer” under the tap “Transfer&Pay”

Step 2:

Set the amount of money, frequency and account information.

And you are done. Now you can just sit back and let your saving grow. If you start small like this, I challenge you to increase the contribution by 1 dollar every week. You will be amazed by how much it will grow over five years.

50/30/20 rule

Senator Elizabeth Warren, who reportedly used to teach when she was a bankruptcy professor, is the original creator of this economic rule. It is pretty simple and straightforward: 50 percent of your budget goes towards big spending such as rent and food, 30 percent for flexible expenses such as a weekend getaway or a new outfit, and at least 20 percent for savings.

For me to apply this rule successfully, I need to set up spending limitations . For example, if I make $3,000 a month after tax, $1,500 will be the money will go toward the essentials. I can still go out and enjoy my life, but I have to limit my fun money to $900 ($3,000 x 0.30). By following this strict budget, $600 ($3,000 x 0.20) will go towards my saving.

My saving rate recommendation: SAVE AS MUCH AS YOU CAN

Standard financial advice on google will tell you to save 10% of your annual income. If you want to work day in and day out until you are 65, then go ahead following this rule by all means. There is nothing wrong with this 10% saving rate. But you might run out of money faster in retirement. I say you can absolutely do better than the average.

To save more, first, I need to figure out how much money will go towards the essentials. I call this category of spending “Dead Money.” The reason is no matter how much I make, I still have to pay this much amount per month. Let’s look at the example below:

My monthly expenses are $160 a month. My goal is to save as much money as possible out of the $2,840 left over. Find the balance that works for you. Good habits such as cooking foods at home, buy only what you need, picking hobby such as reading will go a long way. You don’t want to go out and spend $300 on the new backpack that you always wanted.

Takeaway points

It is important to realize that there are many budget solutions you can try. The more significant the difference between how much money you make and how much money you spend, the richer you can get. The key is to save and invest the difference. It’s all about building the habit to save.

Footnotes:

Thank you Themoneyhabits.org and ChrisReining.com for being my inspiration. I used Canva.com and Smartasset.com to create my illustrations. I am very happy with the way they turn out. Thank you Moneyunder30.com, Millennialmoney.com, Thisisinsider.com, Thebalance.com, for the great ideas and resources.