Create a Budget
The first step in learning how to save money, especially when you live paycheck to paycheck, is to create a budget. A budget will help you track your income and expenses. Start by listing all your sources of income and expenses, including rent, utilities, groceries, transportation, and other bills.
According to the 50/30/20 budgeting strategy, you should put about 20% of your paycheck in savings. Of course, you can save more depending on your personal finance goals. For example, you might reserve a portion of this percentage for a retirement account, unexpected expenses, a family trip or a home purchase.
The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings.
If you're looking for a ballpark figure, Taylor Kovar, certified financial planner and CEO of Kovar Wealth Management says, “By age 30, a good rule of thumb is to aim to have saved the equivalent of your annual salary. Let's say you're earning $50,000 a year. By 30, it would be beneficial to have $50,000 saved.
Consider an individual who takes home $5,000 a month. Applying the 50/30/20 rule would give them a monthly budget of: 50% for mandatory expenses = $2,500. 20% to savings and debt repayment = $1,000.
Those living paycheck to paycheck devote their salaries predominantly to expenses. Living paycheck to paycheck may also mean living with limited or no savings and refer to people who are at greater financial risk if they were suddenly unemployed.
Statistics vary, but between 55 percent to 63 percent of Americans are likely living paycheck to paycheck. Three in four Americans who earn less than $50,000 are living paycheck to paycheck, compared to roughly two in three of those making $50,000 to $100,000.
Saving $1,500 per month may be a good amount if it's feasible. In general, save as much as you can to reach your goals, whether that's $50 or $1,500. You could speak with a certified financial planner to help develop a plan for your finances if you aren't sure how much money to save regularly.
According to data from the Federal Reserve's 2022 Survey of Consumer Finances, the average American family has $62,410 in savings, across savings accounts, checking accounts, money market accounts, call deposit accounts, and prepaid cards.
Nearly 1 in 3 say a salary between $50,000 and $99,999 would suffice, the survey of over 4,300 adults found. Still, 52% of Americans say they would require at least $100,000 a year to be financially comfortable, with 26% saying they would need a salary in the range of $100,000 to $149,000 per year.
Living paycheck to paycheck can be incredibly stressful when it seems like you're paying more for the same goods and services and your salary hasn't increased to match those higher costs.
Living paycheck to paycheck is a pain, but often a reality in your twenties. When you do land the "real job," it's not just your bank account that changes. Here's how to shift your perspective as well.
Nearly one in four (22 percent) U.S. adults said they have no emergency savings. Despite economic challenges, the percentage remains relatively unchanged year-over-year. In 2022, 23 percent of Americans had no emergency savings.
Financial setbacks made it difficult to achieve milestones
In addition to the plethora of financial challenges consumers faced this past year, 65% of Americans experienced financial setbacks in 2023.
Yes, many millionaires in the United States live paycheck to paycheck. According to a 2022 survey by LendingClub, 36% of millionaires said they live paycheck to paycheck. This is even though they have enough income to easily save for retirement. There are several reasons why millionaires may live paycheck to paycheck.
As Ramsey Solutions explained in a blog post, the only “good debt” is paid-off debt. “Your most powerful wealth-building tool is your income. And when you spend your whole life sending loan payments to banks and credit card companies, you end up with less money to save and invest for your future.
One of the most common types of percentage-based budgets is the 50/30/20 rule. The idea is to divide your income into three categories, spending 50% on needs, 30% on wants, and 20% on savings. Learn more about the 50/30/20 budget rule and if it's right for you.
If you have a large amount of debt that you need to pay off, you can modify your percentage-based budget and follow the 60/20/20 rule. Put 60% of your income towards your needs (including debts), 20% towards your wants, and 20% towards your savings.
The biggest chunk, 70%, goes towards living expenses while 20% goes towards repaying any debt, or to savings if all your debt is covered. The remaining 10% is your 'fun bucket', money set aside for the things you want after your essentials, debt and savings goals are taken care of.
FYI: The (mean) average income in The United States in 2020 was $67,521. $5,000 per month is $60,000. Mathmatical conclusion: $5,000 per month is 12,5% below the mean average.