When times are tight, it can feel as though putting even a few dollars away every month is next to impossible. How can you save money when you have a low salary and so many expenses?
There are ways to get that arrow moving in the right direction—even for those who are new to working full time and living on their own.
Taking Advantage of the Employer Match
According to the National Institute on Retirement Security four in five , Americans have saved less than their annual salary in retirement accounts. Thankfully, it’s never too early, or too late, to invest for retirement. Enrolling in your company’s 401(k) plan could be a place to start, and they may even offer matching contributions.
Not every employer offers a match—or a 401(k), for that matter—but if it’s a perk that you can take advantage of, getting more information about how your plan works could open up an avenue for retirement savings.
Employers differ in their plan contributions. Some employers might contribute a dollar for every dollar or a percentage of every dollar an employee puts into the plan, up to a designated percentage of the employee’s salary.
Plans are frequently set up so that employee contributions are taken directly from their paycheck, so the decision to contribute is automated instead of being something to think about each month.
Recommended: How an Employer 401(k) Match Works
Preparing a Budget and Following It
If the idea of a budget seems daunting—or past attempts have been less than successful—it might be because the chosen process is too complicated. It’s not necessary to create a complex set of spreadsheets. When you’re new to budgeting, it might help to start with something simple.
The 50/30/20 rule for budgeting streamlines expenses into three categories so you don’t have to monitor every single expenditure to make it work. Instead, this method recommends dividing take-home pay—what you make after taxes—into three main categories: needs, wants, and savings.
• Put 50% of your money toward needs: housing, utilities, groceries, transportation, insurance, prescription medications and any other payments you have to make such as credit card or student debt, alimony or child support, for example. If you require a cell phone or other equipment for work, that might be a need, but if it’s the newest, most expensive model, you may be slipping into the wants category.
• Put 30% toward wants. Here’s where everything from vacations to vending machine snacks can come in. If it isn’t essential, it goes into this chunk of your budget, so consider each expense carefully. This is where many people go wrong financially. Do you have to go to a gym to work out? Do you need Netflix and a weekly movie night? It’s all your call—but these costs all must fit into the allotted amount of money.
• Put 20% toward savings or toward paying extra on your debt. This category could include your emergency fund, a savings account where you stash away extra cash for short- and long-term goals and your investment savings or retirement account. Keep in mind that some or all of these amounts may already be automatically deducted from your paychecks, so those amounts wouldn’t need to be included here. If you’re planning to pay more than the minimum each month toward credit card and student loan debt, include those expenses in this category, as well.
• Feel free to tweak. If you want to save more than 20%, or you’re in a hurry to pay down debt, you can cut back on your wants to make it work. The key to budget success is to stick with your plan, though, so don’t make it so tough you can’t maintain it.
Automating Your Savings and Payments
Being paid by direct deposit is common these days,, so you might consider it an opportunity to eliminate at least some temptation when payday rolls around. You may be able to split your direct deposit into multiple accounts—a cash savings account and a Roth IRA or traditional IRA, for example—so you won’t be tempted to spend those dollars.
If a payroll split isn’t an option, you might consider setting up an automatic transfer from a checking account to a savings account. In today’s internet age it’s possible to set up automatic payments for a variety of expenses.
The Takeaway
A savings plan doesn’t have to be complicated. By starting small and keeping things simple and steady, budgeting and saving may just become a habit. While that first goal could be as basic as just getting started, it might not take long to realize where the budget can be adjusted to maximize savings.
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