Yahoo Finance 7 Easy Ways To Save $5,000 on a $30K to $50K Salary in One Year
Perhaps you want to boost your savings by $5,000 in the next 12 months but you’re not quite sure how to squeeze the extra money out of your budget.
While lofty, this financial goal is quite popular. Nearly one-third of people hope to save around $5,000 in the next year, according to a recent GOBankingRates survey.
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If you’re earning between $30,000 and $50,000 and there’s no plan for your salary to see a major increase in the next year, you’ll need to get creative.
You’ll be pleased to hear this goal is very attainable, as long as you’re committed to achieving it. Here are seven easy ways to get $5,000 in savings by this time next year.
Cover the Basics
“Determine what you must have to survive,” said Dr. Kate Mielitz, an accredited financial counselor and AFC program manager for Beyond Finance.
She said this includes essentials like housing, food, utilities, clothing, medicine and transportation.
“If you work from home, high-speed internet is also a survival need,” she said. ” Yes, I prefer that people include their credit card debt in here as well, but that’s about obligation, not about survival.”
She said a clothing budget can typically be trimmed pretty low for a single person.
“I do recommend putting at least something in that category in case clothes for work get torn, shoes get a hole or new undergarments are needed,” she said.
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Set SMART Goals
“Any savings goals should be SMART,” Mielitz said.
This stands for specific, measurable, actionable, relevant and time-bound.
“If you want to do $5,000 in a year, you need to save $416.66 [per] month, which means in total you need to have at least $800 left over after your survival needs are taken care of,” she said. “This is because it’s not IF we spend outside of our needs, it’s WHEN.”
To make your savings goals reasonable, she said, you need to account for unplanned expenses.
“You have life to live, you’re probably going to live it, so account for it in your spending plan,” she said.
If you have $800 left each month after your survival needs and save $416.66 of that, you’ll be left with around $383 per month for miscellaneous costs.
As for setting goals, the first step is to make it specific. Mielitz said this might involve committing to save $5,000 by Oct. 15, 2024.
To measure it, you can track your progress throughout the year.
For the actionable step, she said you will need to save $208.33 per pay period — assuming two pay periods per month — in an interest-bearing savings account.
She said ensuring your goals are realistic is the most important part.
“If you don’t have that $800 after needs are met, this goal is very likely not realistic,” she said. “If it’s not realistic, it’s not going to happen.”
Finally, you’ll need to make the goal time-bound. In this case, the timeframe is one year.
Determine Where Your Money Is Going
It’s hard to save extra when you don’t know where your money is going each month. Therefore, Mielitz said you need to get to the root cause — e.g., are you spending more frivolously when you’re stressed or eating out more frequently when you’re tired?
“Figure out where your money is going and trim back on things that aren’t absolutely imperative,” she said. “Let your friends and family know so that they can support you.”
Plan Ahead for the Holidays
“If you want to avoid the holidays crashing your savings plan, figure out ways you can give without spending,” Mielitz said.
She suggested exchanging skills — e.g., if you’re good at fixing cars, trade that skill for a few hours of babysitting. Alternately, if you enjoy spending time with friends, she said you can save money by hosting a potluck at your place instead.
Create and Maintain a Simple Budget
“Put [a] practical budget in place and keep it simple so you can easily stay on top of your finances and increase your odds of success,” said Kendall Meade, CFP and financial planner at SoFi.
She said one of the most simple and effective ways to budget is by following the 50/30/20 rule.
“With this rule, you should be spending 50% on essential expenses — rent [or] mortgage, insurance, minimum debt payments, etc. — 30% on discretionary expenses — dining out, entertainment, etc. — and 20% towards your goals — retirement, emergency funds, investing, etc.,” she said. “Even a basic budget can help you reach your financial goals, whether it’s to have a financial cushion, put a down payment on a new home, go on your dream vacation or all of the above.”
Lower Your Transportation and Housing Expenses
“Many finance ‘gurus’ beat people up for their wasteful coffee or dining habits, but realistically that is not going to make or break your long-term plans,” Meade said. “Transportation and housing are the critical items in your financial life.”
She said you won’t be able to save money if your car payment and housing expenses are too high.
“I recommend trying to keep your total debt payments around 36%, to give you room in your budget for savings [and/or] investments,” she said. “This includes car payments, housing, student loans and any other debt payments, such as credit cards.”
For example, she said, if your income is $4,000 per month, you’d want your debt payments to be no more than approximately $1,440 per month.
“I see far too many people buy an expensive car and realize a year down the road that this is causing them to fall behind on their other goals, like retirement savings,” she said. “Obviously, you do not want to completely overdo the small expenses — like coffee or going out to eat — but it is important to keep things in perspective.”
She said your living situation also can have a huge impact on your budget.
“In Charleston, South Carolina, where I live, the average rent for a one-bedroom [apartment] is $1,947, and the rent for a two-bedroom is $2,315,” she said. “So if you split a two-bedroom with a roommate, it could save you $789 per month — and that doesn’t include splitting utilities and other expenses.”
In total, that’s $9,000 per year in savings — almost double your $5,000 savings goal.
Review Your Subscriptions
“It is easy for a bunch of small $10 subscriptions to add up,” Meade said. “So it is important to review any free trials that may have expired you need to cancel and also any subscriptions that you no longer use.”
For example, she said if you have five streaming subscriptions, try to narrow it down to one or two.
Institute Waiting Periods
“If you are someone who struggles with impulse purchases, try implementing a waiting period for any non-essential purchases,” Meade said. “This can be anywhere from 24 hours to a week or more depending on the size of the purchase.”
When you don’t have a ton of extra income to work with, saving $5,000 in one year is a lofty goal. However, if you fully commit to the cause, this is something you can definitely achieve.
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This article originally appeared on GOBankingRates.com: 7 Easy Ways To Save $5,000 on a $30K to $50K Salary in One Year
