Saving Tips for All Income Levels

Saving money sounds so easy when you talk about it to family and friends.   The concept of saving money for emergencies and future needs is very important.  The ability to save money however comes with careful planning and good habits.  Every dollar that you are able to avoid throwing away will bring you a step closer to achieving your financial goals.

There are seemingly an endless number of tips to effective savings.   If you have ever found yourself reading money advice that just doesn’t seem to fit your situation, you very well could be right.   Trying to sift through all of the advice becomes a difficult burden for many to manage.

Here are some key tips for saving money for various income levels.

Low Income (Below $20,000)

  • Save $500 now.  While saving more is important, having at least $500 in the bank to cover minor emergencies will help you avoid pay day lenders and excessive interest charges or bounced check charges.

Lower Middle Income ($20,000 – $40,000)

  • Manage the “needs” vs. “wants”.   You need shelter, transportation and food.   Keep the outlay of monthly income for these needs to 50% or less.    While this isn’t easy, doing so will help you pay off debt, save for the future and have some fun along the way.
  • Save for Retirement.  If you have the opportunity to take advantage of workplace plans, do so.  If not, setup an individual retirement account and setup automatic money transfers to it, just like a savings account.

Middle Income ($40,000 – $60,000)

  • Eliminate Credit Card Debt.    As income rises, statistics show that credit card debt also rises.  According to the Federal Reserve’s latest survey of Consumer Finances (54.99%) of middle-income households had credit card debt, compared to (25.5%) of Lower Income households.  Credit Card debt is like an incurable disease to your finances as you are paying interest payments on stuff that basically has little or no current value.  Setting up a good habit of paying off the debt monthly will not only help you reach your financial goals, but prevent you from risk of bankruptcy.
  • Increase your retirement savings.   A good rule of thumb is to increase your retirement savings contributions by 1% each year until you are saving at least 10% of your income in a retirement savings plan.  The more you save now, the better your long term financial success.

Upper Middle Income ($60,000 – $100,000)

  • Don’t borrow, pay cash.   As your ability to earn more income increases, so do the opportunities to borrow more money.   Best rule of thumb – try not to borrow money to purchase items that depreciate or decline in value.  Save money and pay cash for things like trips, home improvements and new cars.
  • Add a Roth IRA.   When retirement comes, most people will be in a lower tax bracket.  But, if you have had the good fortune of making a good income and have been a frugal saver, you could find yourself in the same or even higher tax bracket when retirement arrives.  What is a Roth IRA?  A Roth IRA allows you to withdraw money tax free.  While it is not a source of tax deduction like a 401k, it is a valuable tool for future planning.  A Roth IRA provides the flexibility in using money contributed for other purposes should you not need it in retirement.  You may choose to pay for your child’s education or leave tax free money for them or other heirs to your estate.

Upper Income (Above $100,000)

  • Are you Insured?   If you have not done so by now, top up your insurance and liability policies.
  • Get a Financial Planner.   Good Financial Planning help does not come cheap.  The recommended rule of thumb is to hire a Financial Planner on a fee-only basis, where the Planner gets paid a fee rather than on commissions.  At your income level, making this investment will help you ensure that you are on track for your retirement and other savings goals.

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