After starting your first job, you may be wondering how much you need to make to start saving money. After all, you've likely heard terms like emergency fund, 401(k), and IRA.
But if you are working at an entry-level job, you may be making just enough to cover your basic needs. Saving money may be the last thing on your mind. But how much should you really be making before you start saving?
The answer? You should begin saving as soon as you begin working, and you should take immediate steps to put away money for emergencies ranging from $1,000 to one month’s salary. However, there may be other issues that you might need to deal with before you start saving money.
Are You Covering Your Basic Needs?
It is important that you can cover your monthly expenses before you start saving money. When it comes to monthly expenses, you should think of it as your most basic necessities instead of including all of your luxuries.
This means that you can cover your rent, your food (but not eating out every meal), your car payment, debt payments, insurance, and utilities. This does not necessarily include things like cable TV or streaming services, gym memberships or new clothes.
Depending on the cost of living in your area, you may be struggling to do this on an entry-level salary and may need to find ways to cut your expenses so that you can make ends meet. Taking in a roommate, eating your meals at home, cutting cable, and taking public transportation can help you get on a bare-bones budget and save money.
Do You Have High-Interest Debt?
If you are carrying credit card or other high-interest debt, it does not make sense to be putting a lot of money into savings each month. Here's why: You are paying more in interest each month than you would be earning on your savings.
Instead, focus on paying off your debt then saving, since it will put you in a better financial position and you will not be losing as much money to interest each month. Setting up a debt payment plan can help you get out of debt more quickly. Following a budget is also an important aspect of knocking out debt. If you do not already have a budget, set one up.
Can You Cut Your Budget?
Look at your spending and see if there are areas you can cut so you can start saving sooner. Cutting back on discretionary spending can help you get on the right financial path. Even if you can only cut back $50 a week in a few categories, that savings will add up over time.
It is important that you are not making excuses when it comes to saving money. If you are buying new clothes every week or going on expensive vacations every year, you can likely find ways to save additional money in your budget. It's nice to have fun and have quality things, but you cannot sell yourself short when it comes to financial security.
Is There a Magic Amount to Earn to Be Able to Save Money?
It can be difficult to pin down a specific amount you need to make to have enough money to save. The cost of living varies from area to area and a $50,000 salary will cover a lot more in a rural area than it would in New York City or another metropolitan area.
Don't focus on the numbers, Rather, start off small. Begin by saving for retirement up to your employer’s match as soon as you qualify for it. Then set a goal for yourself with the amount (either a percentage or dollar amount) that you want to be able to save each month.
It also helps to keep your spending in line with certain percentages of your income. For example, aim to have your housing costs no more than 30% of your income. You should make similar goals with other categories. You may also consider following a 50/30/20 budget if you want to work on saving more money.
Updated by Rachel Morgan Cautero.