It probably sounds impossible. It may even feel impossible. But increasing the percentage of your income that you put toward savings can pay off big time. Adding more money to your retirement can allow you to retire earlier or live a more lavish lifestyle in retirement. So before you set your long-term financial goals like the average person, consider setting aside more, maybe even half of your income for the future.
Create a New Budget
In order to save this much money, you will likely have to adjust your current spending habits and patterns. People tend to live and spend according to their salary, but it’s a good idea to create a budget that helps you live well below your means. This requires you to prioritize the future more than the present. We often hear of the 50/30/20 budget where you spend 50% of income on needs, 20% on financial goals like retirement or paying off debt and 30% on wants. So in the new breakdown, you will likely have to reduce both some needs and some wants.
One of the easiest ways to save more money is to make more money. By increasing your income, saving 50% won’t have as big an impact on your life. Consider asking for a raise, applying for a promotion or new job, getting a manageable part-time job or starting a side hustle where you earn money in your free time.
Decrease Housing Costs
You can also consider living somewhere more affordable because housing tends to be the largest portion of people’s budget. Choosing a home that costs less in rent or mortgage can really help you reach your goal.
Open a Special Savings Account
It can be a good idea to have separate accounts for different savings goals. For example, one for your emergency fund, one for your vacation fund and one for your home down payment. Whether you are planning to save 50% of your income for a short term to reach a specific goal or you plan to do this for the long term, forming a strategy can help.
Split Direct Deposit
If possible, you might want to talk to the payroll or human resources experts at your office to inquire about splitting your pay in half. Fifty percent of each paycheck can go where it does now (likely your checking account) and 50% can be assigned for your new savings account (an IRA, Roth IRA or savings account). Putting savings on autopilot can make it much easier to stick to your plan and be less tempted to break your own spending rules.
Even with the best intentions and a plan in place, sometimes things come up. Life happens. So it’s important to check your progress regularly — including any time you incur a financial change, like a raise, windfall or new mortgage. It’s a good idea to know your balance, and stay on top of how much you are paying in fees.
While it may not be easy, these tips can still motivate you to save more — whether that’s 50% of your income or another percentage that works for you.
More Money-Saving Reads: