For this month’s #TEG30daychallenge we are committed to building our savings. And in a perfect world, we would all set aside at least 10% of our paycheck and the only thing affected would be our “fun money.” But, if like many people, you have student loans, credit card debt, or every penny is already allocated, it can be hard to know where to start.
That’s why we opened up The Everygirl’s Instagram to ask you! What financial questions do you have? We received hundreds of responses and sifted through each comment to find the most commonly asked questions about savings. Then we turned them over to our finance editor Erica Gellerman—she answered and provided valuable resources for getting your finances in order. Keep reading to see if your specific question was answered but we know you’ll learn something, regardless!
@waysofstyle: How do I distribute my income? I mean, what percentage goes where? I’m a hot mess.
The general advice for distributing your income is the 50/30/20 breakdown:
- No more than 50% of your after tax income should be spent on needs (things like rent, utilities, groceries, and debt repayment)
- No more than 30% of your after tax income should be spent on wants (eating out, shopping, vacations, etc.)
- At least 20% of your after tax income should be saved (use this for your emergency fund, retirement savings, and any extra debt payments you might make)
The breakdown is general and isn’t always going to be possible, especially if you have large student loans, but it’s a balance that you should work toward. Use a tool like Mint or YNAB to start tracking your spending and see how closely it lines up to the breakdown above. Once you know how you’re spending your money, it’s easier to see where you need to make changes.
@alyssaklatt: How do I manage rent and loans while still contributing to savings?
It can be tricky, especially when you’re paying off debt, but using the 50/30/20 rule above can help you figure out where you might need to cut back in order to include saving. Remember, little expenses can really add up, so if you find yourself spending way too much on wants and needs, and not enough on saving, it’s time to take a look at where you can cut back. Small cuts can make big changes to your budget. Use this article on How to Create a Budget That Works For You to create a budget.
@baileytsears: What percentage of my income should be going toward rent/housing?
As mentioned in the breakdown above, your monthly spending should follow the 50/30/20 breakdown. Rent/housing will fall into the first category so not more than 50% of your after tax income. But remember, that’s not the only thing that falls into that category. You’ll also want to include utilities, groceries, and monthly debt repayment. If you spend more than the allotted 50%, take a look at what you’re classifying as a “need” and figure out if there are some things you can cut back on.
@joanna_clarke: How do you save money when you don’t make lots of money?
It can be tough to save when you don’t make a lot of money, but it’s definitely not impossible! Small changes and cutbacks can make a big difference in your budget and savings account. Even if you can only afford to save $100 per month right now, it will set you up for long-term financial success. Take a look at our article on how to prioritize and automate your savings and the Easy Ways to Save More Money for tips on saving day to day.
@stephanieswong: I’m recently engaged. How do I balance saving for a wedding, a future home, and still contribute to my 401k? We don’t want to go into debt to pay for our wedding so have a finite time to save A LOT of money!
Kudos to you for not wanting to go into debt for your wedding and still balance other savings and retirement investing. As a general rule, retirement should be your saving priority, but knowing that you have a lot of things you need to save for soon, lay out all of these specific financial goals and then map out how you want to save for them. Our article on Setting Financial Goals That Stick should get you started by what you need to save for and how you’re going to get there.
@jordangerbsch: Can you tell me more about saving for future purchases vs. saving for retirement?
Saving for retirement should be your priority. There is such a huge benefit to be had from starting to invest early (compounding interest is your friend!) and saving for retirement is something you want to make sure you’re on track for from the beginning. Take a look at two of our investing and retirement articles: Why You Should Start Investing Today and 401k v IRA, which details why you should start investing now and which retirement plan you should start investing.
@kaylam.frank: Is it better to pay a higher amount of your student loans back or pay less so you can save for more immediate future goals, like buying a house?
General advice is that it’s better to pay more toward your student loans, especially if the interest rate on those loans is quite high. Paying down your loan payments faster not only means you’ll be done with debt sooner, but it will significantly decrease the amount of interest you’re paying on the loan. Take a look at our article on refinancing or consolidating your student loans, which will hopefully make it easier and faster to pay them off!
@inlandmamaI: I have two daughters, almost 1 and 2.5. How do I start saving for their college tuition?
A 529 plan is a great option for saving for college. Much like a 401(k) or an IRA, you get special tax benefits—but there are restrictions on when you can take out the money. You can invest in a 529 plan that you choose, let it grow, and then withdraw it when your kids are in college to pay for qualifying expenses. There are three benefits of a 529 plan:
- In some states you can use your contributions as a deduction for state tax purposes
- Your money grows tax free within the account
- You can withdraw money tax free when you spend it on college expenses
Getting started with a 529 now will set your daughters up for great financial support later!
@ajlamb27: How much should I save before I consider investing?
You should have a rainy day fund set aside that will cover 3-6 months of expenses before you begin investing. That includes your rent/mortgage payments, debt payments, and other expenses like utilities, groceries, and transportation. You should hold your investments long-term so having this rainy day fund will ensure you don’t have to pull money out of your investments—even if an unexpected expense arises or if you unexpectedly lose your job.
@jillingwaI: I only have the one savings account…should I have more? I have yet to buy a major expense (like a car or house) and I have no idea how to prepare for that.
I really like having multiple savings accounts to help keep me organized and working toward my savings goals. I currently have a rainy day fund, a vacation savings account, and a savings account for a future home. I have them all with the same bank and the bank even allowed me to set up savings goals. Each time I log in I’m able to see the balance in all of my accounts and how close I am to reaching my goals for each account. Read our tips for setting and prioritizing financial goals.