How long should you take to save the equivalent of your salary? Well, there is no standard answer, but in this article, we will explore how various approaches help you reach this goal. We use the example of someone earning Ksh50,000 in monthly net salary/income.
Saving Methods To Help You Save Equivalent To Your Salary
The following are methods that can help you achieve your savings goals. These methods range from the realistic methods recommended by financial advisors, such as the 50/30/20 rule, to the most extreme savings methods, such as the FIRE Method.
The 50/30/20 Budget
The 50/30/20 method outlines how you should divide your income. 50% of your income should be used for your needs, which include food, shelter, clothing, and commuting. The other 30% is allocated to your wants, these include the creature comforts that you enjoy. On the other hand, the remaining 20% is committed to savings.
Therefore, if you are earning Ksh50,000, then Ksh25,000 should be allocated to your needs, Ksh15,000 to your wants and Ksh10,000 to savings.
To increase your chances of success using this saving method, you can implement the principle of paying yourself first.
Paying yourself first is a saving method that prioritises savings above everything else.
The proponents of this savings method argue that most people, when they get their salary, end up paying everybody else—the landlord, their banks, the insurance, the supermarket, etc.—and they never pay themselves.
By paying yourself first, you are acknowledging yourself for all the hard work you have put in within the month. By appreciating yourself, you also give yourself a chance for a better life in the future through your savings.
Using this saving method, you have to predetermine how much you want to save. As soon as your salary hits your account, you transfer the savings amount into your savings account and then figure out how you will use the remaining money.
You can also automate this deduction through standing orders or an agreement with your employer.
The 50/20/30 Budget
This method works similarly to the 50/30/20 rule, only that you invert the allocation for wants and savings. In this case, you allocate 20% of your income to your wants and save 30%.
Using this method, you will be saving 30% of your Ksh50,000, which will amount to Ksh15,000. Saving Ksh15,000 every month will take you between three and four months. At the end of four months, you will have exceeded your target by Ksh10,000.
You can use the pay yourself first principle to see that you achieve your goals using this savings method.
The 60/40 Rule
The 60/40 rule is a savings method where you spend 60% of your income and save 40%. This method does not specify how you should divide up the amount you are to spend; that is at your own discretion.
Saving 40% of Ksh50,000 will have you saving Ksh20,000 per month. You will therefore have saved Ksh60,000 after three months, which is beyond your Ksh50,000 target.
Another saving practice you can also use to help you save is the envelope method. The envelope method is where you figure out your expense categories, such as transport, groceries, rent, entertainment, etc., and write them on an envelope. Then you determine how much each expense is going to cost and you put money in the envelope.
Ideally, one of the envelopes should be the 40% savings envelope. This money should not be touched.
This method allows you to monitor your expenses closely and spot areas where you are overspending. In the event that you underspend, you can add the remainder to the savings envelope.
The envelope method is done using physical envelopes and cash; however, you can also use digital tools, such as savings apps and bank apps.
Frugal Minimalist (Saving 50%) Method
The frugal minimalist method is a demanding savings method. However, it is not impossible. It will require you to significantly cut your expenses since half of your pay will be directed to savings.
Saving half of your income will only take you two months to save the equivalent of your salary.
A good saving practice to help you achieve this minimalist approach is the zero-based budget. This is a budgeting method where all expenses have to be justified again every budgeting period. Assuming your budgeting period is one month, then every month you will have to justify every expense for the month.
At the beginning of every month, you will have to write down a new budget, interrogating every expense to determine if you want to commit to it that month.
While using this method, you also have to relook at what you are saving every month and, depending on your savings goal, determine whether the amount you are saving is bringing you closer to your goal or not.
You have to ensure you remain very objective while using this method, as you might be tempted to prioritise short-term needs over long-term goals.
The FIRE Method (Saving 70%)
The Financial Independence Retire Early (FIRE) method is a movement that encourages people to save as much as they can so that they retire early. With this method, you can save as much as 70% of your income. Using this method, you have to be very dedicated to the movement to pull it off.
However, if you choose to save up to 70% of your income, then within the first month you will save Ksh35,000 and in the second month you will have saved Ksh70,000.
To implement this method, you can use the no-budget-saving practice. This method is similar to paying yourself first. In this method, you prioritise savings and investments and then everything else comes after. It is called a no-budget since, once you save and invest, you are free to use the remainder of the money as you wish, without a budget.
Wrapping Up
If you are looking to start saving, there are methods that can help you attain your savings goals. Whether your savings goals are to save an amount equivalent to your monthly salary or beyond, pick a method that works for you and stick with it. In no time, you will be blasting through your savings targets.
