Saving a significant portion of your paycheck can seem impossible. Most Americans struggle to save even 10% of their income. However, if your goal is to retire early, achieve financial freedom, or simply stop stressing about money, scaling your savings rate up to 60% is a powerful target.
While saving half your income is admittedly easier if you earn a high salary, it is difficult for everyone due to “lifestyle inflation”. Whether you want to hit that 60% mark or simply move from 10% to 20%, the strategies remain the same: increase your income and ruthlessly cut the right expenses.
Here is a breakdown of how you can restructure your finances to maximize savings.
1. Attack the “Big Three” Expenses
To make a real dent in your budget, you have to look beyond small purchases like lattes. You need to focus on the three largest expenses in most people’s lives: housing, food, and transportation.
Housing
Many people overspend on homes that are larger than they actually need. If you analyze the space you use versus the space you have, you will likely find a discrepancy. To drastically cut costs:
• Downsize: Consider a one-bedroom or two-bedroom apartment instead of a three-bedroom unit.
• Get Roommates: Splitting costs can lower rent significantly—for example, by living with roommates in a smaller space, it is possible to get rent down to as low as $415 a month depending on the location.
• Move Closer to Work: Commuting an hour each way kills your wallet through gas and wear and tear, not to mention the lost time. Living within walking or biking distance can save you money and time.
Food
If you find yourself ordering takeout every other night because it is convenient, you are draining your budget.
• Delete the Apps: Remove food delivery apps like UberEats and toss the pizza flyers.
• Meal Prep: You don’t need to be a chef. Cook a massive pot of food one day a week and live off that for the remaining days.
• Shop Once a Week: Going to the grocery store every other day usually leads to impulse buys. Limit yourself to one trip per week to keep costs down.
Transportation
The average car payment is around $545 a month, and owning a new vehicle in America costs over $8,800 a year.
• Go Car-less: If you live in an area with good public transportation (like the Northeast corridor near Philadelphia, D.C., or New York), you might not need a car at all.
• Avoid Payments: Cutting car payments and insurance is one of the most effective ways to free up cash flow.
2. Avoid Fashion Trends
Clothing costs can add up to thousands of dollars a year if you chase trends. Fashion is cyclical; buying an expensive jacket because 90s styles are back in vogue means you might look foolish in a few years when the trend dies.
Instead, buy simple, timeless clothing. A basic black, brown, or gray coat will look normal for decades, saving you money over the long term.
3. Increase Your Income
There is a limit to how much you can cut, but no limit to how much you can earn. It is much easier to save half your income if you make $200,000 than if you make $20,000.
• Ask for a Raise: If unemployment numbers are low, employers may struggle to find replacements. This makes it an ideal time to ask for a raise.
• Side Hustles: Look for side jobs to supplement your primary income.
However, remember that making millions doesn’t matter if you don’t manage your finances; you can still end up broke without a budget.
4. The “Tax Yourself” Trick
The most effective way to ensure you save is to remove the willpower from the equation.
• Auto-Withdraw: As soon as you get paid, automatically withdraw your savings percentage (e.g., 30% or 40%) and move it to a separate account.
• Live on the Rest: Treat your savings contribution like an upfront tax. If you make $4,000 a month and save 30%, force yourself to live on the remaining $2,800.
Pro-Tip for Couples: Try living entirely on one spouse’s income while banking 100% of the other spouse’s earnings.
Final Thoughts
Saving 60% of your income is an aggressive goal, and you shouldn’t make yourself miserable to achieve it. Don’t skip a beach trip with friends just to save a few dollars on gas—you still need to enjoy your life.
Start by creating a budget to track where your money is going. Aim to save 10% or 20% first, focus on those big wins in housing and transportation, and scale up from there.
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