Saving money is an important part of achieving financial stability and independence, and one of the best ways to do this is by setting aside a portion of your earnings. I started this years ago and have only increased the amount I’ve saved over time. In this blog post, we will explore why saving 10% of your income is so important, and how easy it is to start.
Why should I start saving?
First and foremost, saving 10% of your income can help you build an emergency fund. An emergency fund is a savings account that you can tap into in case of unexpected expenses, such as a temporary loss of employment or a car repair. Without an emergency fund, you may have to rely on credit cards or loans to cover unexpected expenses, which can quickly get you into debt.
Saving 10% of your income can also help you achieve longer-term financial goals, such as buying a house or saving for retirement. By setting aside a portion of your income each month, you can create a savings plan to reach these goals. Without a savings plan, it can be easy to put off saving for these goals and end up with less time to save.
Another benefit of saving 10% of your income is that it can help you avoid lifestyle inflation. Lifestyle inflation is when your spending increases as your income increases. When you save 10% of your income, you are creating a budget for yourself and increasing the savings with each raise you receive.
How do I start?
The good news is, saving 10% of your income isn’t all that difficult. One of the easiest ways to start saving is by changing the setup of your direct deposit.
Ask your employer for their direct deposit form and indicate that 10% of your earnings go to your savings account and the rest to your checking account (as illustrated below). It’s easier to save the 10% each paycheck if you don’t see it hit your checking account. You won’t have to remember to transfer the money yourself, and it will be easier to stick to your savings plan.
Now what?
Watch your savings grow by tracking your net worth regularly. And make sure you continue this practice if you change jobs. After you have 6 months of income in your savings account you should pat yourself on the back. You can rest assured that you’re not living paycheck to paycheck and have a pad in place in case a hardship arises.
Disclaimer: The information contained in this post is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstances before acting on it, and where appropriate, seek professional advice from a finance professional.