How much money should you save in 2014?
How much money should you sock away in savings in 2014?
It’s the ultimate question, right? If only the answer were that simple. Of course how much you save throughout the year will depend on a lot of variables like where you live, what debt you’re paying down, your salary, etc.
Different experts will probably suggest different things when it comes to saving. I myself have always liked to follow something called the 50/20/30 rule (a term coined by the personal finance site, Learnvest). It’s simple to follow, and you can make it work on any salary. The 50/20/30 rule divides your money into three categories:
50% for essentials (rent or mortgage, transportation, utilities and groceries)
30% for lifestyle (entertainment, shopping, pets, trips, etc.)
20% for financial priorities
The financial priorities category is where it can get dicey. Depending on your financial situation, this category could include paying off student loans or paying down debt, contributing to a retirement account or stocking away in an emergency savings. If you’re struggling to figure out how to divide up that 20% among your multiple financial priorities, remember to tackle any high-interest loans or debts first, along with helping to cushion your emergency fund.
Let’s looks at the average American salary in 2012 for a real life example. According to the Census Bureau, the median American household brought in $51,017 in 2012. Given that income, using the 50/20/30 rule a household might divide its budget as such **:
Essentials: No more than $25,508.50 (or approximately $2,126 per month) should be going towards paying the rent or mortgage, for transportation, utilities and food (not including eating out). People who live in expensive cities like New York or San Francisco may find this number hard to swallow — oftentimes rent alone in those cities can top out at over 50% of a person’s salary. Use the 50/20/30 rule as a guideline to determine whether or not your current living situation is allowing you to live within your means. If it’s not — it might be time for a change.
Lifestyle: Use approximately $15,305.10 (or approximately $1,275 per month) to contribute to lifestyle choices like entertainment, gym fees or hobbies, as well as things like cell phone plans and cable. If you’re spending more than that, it’s probably time to take a look at what you can cut back on to avoid spending money you don’t have — or maybe even worse, spending money that you could be putting towards paying down high-interest loans or credit card debt.
Financial Priorities: That leaves us with about $10,203.40 (or approximately $850 per month) for savings and debt repayment. Remember — from this amount you should tackle any high-interest loan or credit card debt first, then set up a reoccurring monthly amount to be sent directly to your emergency savings account. If your company offers a 401(k) plan, invest in it at least up until you reach their match (if they offer one).
Budgeting doesn’t have to be difficult, and it really is possible to put at least a little bit away for savings, no matter how much you make. It’s all about taking a look at the numbers … and making a plan.
** Editor’s Note: These numbers are estimated based on a pre-tax amount.
Cheryl Lock is a personal finance writer at and former editor at LearnVest and Parents magazine. When she’s not writing, she enjoys travel, which she blogs about at wearywanderer.wordpress.com.