How to Save $1,000 on an Average Income
Here's how to sock away your first $1,000, even if your earnings aren't so robust.
- It's important to have money in savings for emergencies and unplanned expenses.
- While saving money on an average salary isn't easy, this strategy could help you sock away your first $1,000 relatively quickly.
You'll often hear that it's important to have some amount of money in your savings account for unplanned bills. In fact, a good bet is to have an emergency fund with enough money to cover three to six months of living expenses. That sum could get you through a period of unemployment, an illness that comes with high medical bills, or another event that upends your finances.
That said, building up a full emergency fund isn't easy to do, especially on an average income. In that situation, your earnings are most likely monopolized by recurring expenses, the bulk of which are probably unavoidable.
Still, even if you can't build a full emergency fund right away, it's important to have some amount of money in savings. If you take these four important steps, you could be well on your way to saving your first $1,000.
Step 1: Open a savings account
If you don't have a savings account yet, opening one is your first step to building up a $1,000 cushion. That way, you can arrange to have a portion of your paychecks land in that savings account automatically to help you stay on target (this assumes you have a checking account that you can link to your savings).
You may only manage to send $20 or $30 from each paycheck into savings initially, and that's okay. There's nothing wrong with starting slowly and working your way up over time.
Step 2: Set up a budget
A good way to stretch your paycheck is to know exactly where your money is going month after month. Having a budget will help.
Comb through your checking account and credit card statements from the past six months so you get a sense of what your various bills look like and how much you actually spend on each. Then, write all of that information down in a notebook, plug it into a spreadsheet on your laptop, or use a budgeting app to start tracking your spending.
Step 3: Cut back on expenses to a reasonable extent
Once you have your budget in place, you can start taking steps to cut back on spending in those categories that give you that wiggle room. You may, for example, be able to grocery shop a little more mindfully and spend $20 less on food each month as a result. There may also be a few luxuries you spend money on regularly that you can scale back.
This isn't to say you can't ever buy coffee or order takeout. But if you cut back a little, you can sneak more money into your savings.
Step 4: Give your earnings a boost
To get to your first $1,000 in savings, you may need to give your income a nudge. A side hustle could be your ticket to doing that. The great thing about working a second job is that it's money you won't be counting on to pay bills with. That should give you the option to send all of your earnings into saving, minus the amount you owe the IRS in taxes.
Sometimes, even above-average earners struggle to save money, so if you're only earning a typical wage, you may face some challenges on the road to building savings. In addition to these steps, remember to give yourself a break if it takes some time to establish a decent cushion in the bank. The fact that you're making an effort to save is something you should feel proud of.
Alert: highest cash back card we've seen now has 0% intro APR until 2024
If you're using the wrong credit or debit card, it could be costing you serious money. Our experts love this top pick, which features a 0% intro APR until 2024, an insane cash back rate of up to 5%, and all somehow for no annual fee.
In fact, this card is so good that our experts even use it personally. Click here to read our full review for free and apply in just 2 minutes.
Our Research Expert
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.