The need for savings is universal. Everybody needs to save, but how you save is a lot more personal.
Your ability to squirrel away some cash depends an awful lot on your financial situation. People who just scrape by can’t possibly save as much as six-figure earners. Meanwhile, the cost-cutting savings that work for the middle class may not help the wealthy optimize their investments.
It makes sense to adjust your savings goals and strategies according to your income. Here’s how you can do that:
What to Focus on if You Are a Low-Income Earner
Who falls under the low-income bracket? It depends on where you live and the size of your household. For individuals in North America, it usually refers to any single individual earning less than $30,000.
Regardless of the exact number on your paycheque, low-income earners share similar budgets. Since you earn less, your paycheque doesn’t stretch as far. While you may cover your needs, you might not have that much cash left over to save.
Even if you manage to sock away some money, your savings may be slower to grow than high earners. You might rely on credit cards and lines of credit more often when you need help in an emergency. If you’re in the middle of one now, you may need to learn about the borrowing process very soon.
While a line of credit may be a great safety net for those situations when your savings fall short, you should do everything in your power to maximize your savings. Here’s how you can self-finance your emergencies and borrow less.
- Embrace Frugality: Always be on the look for a deal. You can reduce costs by shopping for sales, using coupons, and seeking out affordable alternatives.
- Automate Savings: What little you can save, set it so that it transfers automatically to a dedicated account to ensure consistent savings.
- Brainstorm Careers: What would you have to do to change careers and earn more? Break this goal down into several small steps to help you identify what you can do today to get the ball rolling. Consider taking up a side gig or second job to boost your budget.
Saving Strategies for the Middle Class
The middle class covers a wider range of salaries that, true to its name, represents the middle of the pack; you aren’t low income, but you also aren’t one of the highest earners.
As a result, you might cover your needs with more confidence, but you can still feel the crunch when financial emergencies happen. You may even need a line of credit to handle these unexpected expenses. However, you have more flexibility to spend your money as you like, so you have more to save.
With this in mind, here’s what you should do if you’re in the middle class.
- Budget Effectively: Track your spending, being mindful of non-essential spending. Just because you have the money to burn doesn’t necessarily mean it’s a wise use of your resources. Find out what you want out of life.
- Set a Variety of Goals: The middle class has the privilege of looking beyond today’s financial problems. You can multi-task short-term and long-term savings goals with greater ease.
- Focus on Paying Down Debt: Lingering lines of credit balances and personal loans can hold you back from investing for a brighter tomorrow.
How to Maximize Your Savings as a High Earner
From an outside perspective, high earners should have the easiest time saving, but even people boasting six-figure salaries struggle to save. They often have the lifestyle to reflect those six figures, so it can be hard to find room for savings in the budget.
Here’s what you can do if you belong to this group.
- Focus on Paying Down Debt: According to Time, more than half of high earners are living paycheque to paycheque. Debt is partly to blame, as it absorbs a good chunk of even the biggest paycheques. Start focusing on paying down your debt to increase your savings. You may even want to talk with a debt counsellor to discuss your options, like debt consolidation.
- Avoid Lifestyle Inflation: High-earning debt is often the result of lifestyle creep. As you earn more, you buy more expensive cars, tech, and houses. In the end, you may spend the same percentage of your paycheque as someone who earns half of what you make. Try to focus on the real priorities while reducing your lifestyle costs. Adopting a more minimalist approach to life might help you free up more of your paycheque for savings.
- Maximize Retirement Contributions: Take advantage of retirement funds, especially if your employer offers a pension. You should also talk to a credit counsellor or bank advisor about diversifying your investments.
Bottom Line:
While the way you get there might differ due to your salary, the destination is always the same. Everyone, regardless of income or expenses, needs to have savings tucked away for a rainy day and retirement.