When you are first starting on this journey, the idea of saving 20% or even more sounds just impossible. I actually save much more since I am self-employed, because there are times when I am not working and drawing my savings. So I do try to save more.
One way you can save 20% is to pay yourself first. The first 20% comes out and goes to the savings account never to get touched. I know, you’re screaming that you wouldn’t pay your mortgage, car payment, utilities, and so on, but it would force you to fit a big budget into a smaller amount… which ultimately means cutting. Or, it might mean finding ways to increase your income.
So let’s say you “can’t” just pay yourself first. I’ve heard that before. From myself. From my children. It just isn’t possible. Well it is, depending on what you are willing to sacrifice. If you feel there’s nothing to sacrifice, save 1% or 0.5% of your take home pay. Whatever you can dig up today. Then, when you get a pay raise, increase your percentage.
In the mean time, see if you can find items in your budget to cut. Evaluate everything. Evaluate the cash you take out of your pocket for anything. Keep a notebook of cash spending then take a look at it at the end of the week and the end of the month. See if there is anything you can live without.
Now, it might be easy to save $5 here or $10 there from your budget without looking at the big items. But you really should decide whether the mortgage or car payment can shrink. If you haven’t done it in a while, see what a refinance could save you. If you have a car payment, you should evaluate whether you can find a way to live without one. I have a 20 year old pickup truck that works just fine for me, it used to be my Dad’s. My wife was driving her Dad’s Ford Fusion for a couple years until we gave it to my daughter.
Now back to the idea of paying yourself first. People generally spend all of their paycheck. No matter how much it is. You make $100, $1000, or $10000, it gets spent in it’s entirety unless you learn to save first before the spending starts.
Saving has to be a priority in your life, otherwise you will continue to live paycheck to paycheck.