In Budgeting, For Beginners, Money

How to save $20,000 in a year

YOU NEED TO MAKE ENOUGH MONEY TO BE ABLE TO SAVE $20,000 IN A YEAR

If your gross income is $20,000, you will not be saving $20,000 a year.

If after taxes, you take home less than $35,000 as your net pay, you will not be saving $20,000 a year.

This is basic math.

BREAK IT DOWN BY MONTH & BY WEEK

$20,000 / 12 months = $1667 a month

Then by week, it’s about $417 a week or just under $60 a day.

Doable, right?

SAVING IS NOT JUST ACTUAL SAVINGS, IT MEANS “NOT SPENDING”

Saving means you’re saving the money by NOT SPENDING IT.

Not buying that coffee, those new shoes, a new top that you may not really need (let’s face it), means you are saving that money instead.

SET IT ASIDE IN A SEPARATE ACCOUNT SO YOU DON’T SEE IT

If I don’t see the money in my bank account, I don’t feel like I  am able to spend it .. because I am seeing $0 and therefore think I have $0.

Maybe it’s the same thing for you — just take a look at your bank account and create that scarcity mindset, you will FEEL like you can’t spend that money.

BE CONSISTENT

Saying: Oh I’ll put aside that $60 a day .. TOMORROW, just builds up this procrastination that will continue and continue until you’ve reached the end of the month and realize that you don’t actually have anywhere close to $1667/month saved because no one can save $1667 in a day.

MAKE MORE MONEY

Make more money.

Pick up a part-time job, and do what it takes.

If you’re serious about it you are going to find a way to make more money to reach your goal.

Otherwise, accept that you won’t be able to save $20,000 and pick a more realistic, achievable goal like $10,000 a year or $833.50 a month.

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USE YOUR RETIREMENT ACCOUNTS & TAKE ADVANTAGE OF EMPLOYER MATCHES

If you have a great employer plan that let’s you save X amount of your income and they’ll do a 50% or 100% match of it, THEN GO FOR IT.

It is FREE. MONEY.

FREE.

JUMP at the opportunity to kill 2 birds with one stone:

  1. You won’t be seeing the money in your bank account any more because your company will skim it off your paycheque automatically
  2. You’ll be getting FREE MONEY from your employer for saving

Win-win.

RETIREMENT ACCOUNTS ALSO GIVE YOU BACK A TAX CREDIT

My last point is that if you save money in your 401K, RRSP or any tax-sheltered retirement savings account, you will get a tax CREDIT back at the end of the year.

It’s like they’re paying you to save your own money. They give you a break on your taxes to save money.

When you get that tax refund back from the government from having saved your own cash, you can consider THAT as savings too and plow it back into your retirement accounts.

So to recap, they’re giving you a tax break to save your own money, and when you get a tax refund on your own savings, you have essentially already saved that money too because the government already took it from your paycheque & you never missed it.

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BUDGET & TRACK YOUR EXPENSES

If you don’t budget & track your expenses you will not be able to know what you are spending and therefore what you are NOT saving.

See how I did that?

Spending = What you are NOT saving

You need to know what you are spending each month.

If you bring home let’s say $2500 a month and your rent eats up $2000 of that, you will NOT be able to save more than $500 a month.

This is a far cry from the $1667 you need a month.

To save $20,000 net a year, you need to do this calculation:

YOUR FIXED EXPENSES (e.g. RENT, CAR INSURANCE)

+

YOUR VARIABLE EXPENSES (FOOD, GAS, ENTERTAINMENT)

+

$1667 (YOUR $20,000 NET GOAL)

=

How much you need to make as a net income this month.

So if it looks like this for you:

Rent $1500
Insurance $300
Food $300
Gas $150
Entertainment $50
$20,000 Goal $1667

TOTAL = $3967 a month (net income)

…or around $47,604 NET income a year

 

Of course if you save in your retirement accounts instead, you will get that tax break I mentioned and your employer match as well, but essentially, you need to make at least $40,000 net a year, which is about $55,0000 gross as an income, taking taxes into account.

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Sherry of Save. Spend. Splurge.

Am my own Sugar Daddy. Am a millionaire at 36 after getting out of $60K of student debt in 18 months, a little over a decade earlier, using TheBudgetingTool.com. I have worked 50% of my career (taking 1-2 year breaks), and quadrupled my income within 2 years of graduating, going from $65K to $260K with an average lifetime savings rate of 50%. I have 11 side incomes that are on track in 2020 to make me $50K - $75K. I could retire today if I wanted, but love my work-life balance as a freelancing consultant in STEM (Science, Technology, Engineering, Math). I am all about balance - between time and money, and also enjoying my money. I also post daily on Instagram @saverspender.

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3 Comments

  1. Lisa

    I am never good about budgeting or tracking my spending so I just move my money to Savings and Retirement accounts as they come in every month. That way, before I figure out how I am going to spend it or what new things I want to buy, most of my money is gone already (out of sight, out of mind strategy).

    Reply
    1. save. spend. splurge.

      That’s a good trick. I do something sort of similar by moving my cash out into another account I don’t look at often.

      Reply
  2. Clarisse @ Make Money Your Way

    I’m happy that I started to track my income and expenses by using spreadsheet and mobile application. It’s easier for me to view my daily expenses.

    Reply

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