Thursday, July 25, 2024

If you earn Sh. 60,000 net, how long should it take you to save Sh. 60,000?

It is universally known that saving money should be a top priority, but often society neglects this and chooses to spend aggressively for one reason or the other.

In most cases, it isn’t about financial illiteracy but rather due to a lack of proper budget or sheer impulse to be a spendthrift.

Saving money is important because it ensures protection against any unforeseen financial emergencies.

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Those with the charisma to save money regularly will also tell you that it helps relieve financial anxiety and stress, curb potential debts and build good money habits necessary to build wealth.

If you are earning a certain amount of money, say in our case Sh. 60,000 net income, how long should it take you to save Sh. 60,000? Let’s face it, high odds you won’t be stashing the whole paycheck right off the bat.

In this article, we break down a considerable gradual approach to achieving your target; which is in this case, saving your salary’s equivalent. For these methods to work, one must be living below their means.

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1. The 50/30/20 budget rule

As a rule of thumb, this is the most widely known savings method committed to the memory of most people. It is also the most recommended method by financial advisors.

This saving strategy is pretty simple. Half of your income, 50% goes to the essentials; food, rent, clothes, and transport. Then, 30% is for your fun stuff, those little luxuries you can’t resist. Most importantly, save 20% for a rainy day.

Due to obvious human nature, saving money can be quite a challenge for most. It is therefore advisable to partition your money after you have made the savings. This is the definition of ‘Paying yourself first’.

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So, if you were to earn Sh. 60,000 monthly, save Sh. 12,000 without batting an eyelid and then account for the rest in the stated chronology; Sh. 30,000 will cater to your needs and Sh. 18,000 for wants.

This budget rule is however not a favourite of many. They will argue that when the salary comes in, they end up paying everybody else first before having enough to save.

This shouldn’t be the case. Pay yourself first for all the hard work you put in within the month and watch as the numbers tide in your favour in the future. Strictly following this regimen, your savings will attain salary equivalence in 5 months.

2. The 50/20/30 budget rule

This method works somewhat similarly to the former budget rule, only that it accounts for those with more appetite and tolerance for savings, with a higher 30% allocation.

So, 50% of your income goes to your needs and 20% to your wants. Using our Sh. 60,000 example, Sh. 30,000 covers your essentials, Sh. 12,000 is for your fun splurges, and your savings get a nice boost to Sh. 18,000.

Use the ‘Pay yourself first principle’ and watch as you achieve your goal in less than 3 and a half months.

3. The 60/40 rule

This approach could easily become a favourite for many since it doesn’t dictate how you should split up your spending money. It is at your discretion.

However, the spending cap is set at 60%, leaving a solid 40% for savings. Using our example of Sh. 60,000, that means Sh. 36,000 for needs and Sh. 24,000 for savings.

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In just three months, you’ll have saved Sh. 72,000, surpassing your salary equivalent target.

4. Frugal Minimalism method (save 50%)

This approach combines frugality, minimalism and slightly borrows from the 50/30/20 rule. Here, you focus on needs only, not wants, by decluttering and enjoying the simplicity of life.

It is a very demanding method, but not impossible. This method requires one to cut the salary in half, 50%/50%. Half for expenses and half for savings.

Saving in this way will only take 2 months to get to the salary equivalent of what you earn.

A great way to nail this minimalist approach is by using the zero-based budget where you justify every single expense at the start of each budgeting period.

You have to be very objective with your intentions with this method as you might be tempted to prioritise short-term needs over long-term goals. This method builds the foundation for the next.

5. The FIRE method

FIRE stands for Financial Independence, Retire Early. It is a movement that is centred on achieving early retirement through extreme saving and investing. Frugality is very important.

There are three different variations of FIRE: lean FIRE, fat FIRE and Coast FIRE. The core principle guiding all these 3 variations is savings of more than 50% every month, preferably 70% whilst investing in passive income.

Drawing from our sample salary, if you choose to save 70% and seek investments, then within 2 months you will have saved over and beyond your salary equivalent.

To master this approach, try the no-budget saving method. First, pay yourself through savings and investments then enjoy the rest of the money as you please, no budget needed.

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