Tuesday, February 23, 2010

Is saving most of my pay realistic?

Q: I had a few people tell me they save money by taking out a certain amount of cash a week & then putting the rest in savings. Is it realistic? Can you really save that way?
A: I say all the time that what works for one person's money won't necessarily make sense for another, and this is a clear example. This may be entirely realistic for one person and completely irrational for another person to try. Without knowing the specifics of those people's financial situations, I can't say.

My best educated guess is that arrangement would be ideal for someone who had little to no debt and very low living expenses compared with their income. For example, a working student who lived at home with parents should be able to live on a small amount of cash and put away the rest. Working people who live in houses they own with no mortgage or consumer debt should be in a similar position.

So the real question, in my mind, is about how low your expenses are. If your expenses are far lower than your income, you should be able to live on a small amount of cash and save the rest. Hope this helps.

photo: Simon Howden/freedigitalphotos.net

1 comment:

Thesis said...

I'd like to simply say putting a certain amount of money away from each paycheck is a temporary band-aid to saving. It may work for a few months but life always throws a curve ball and tha $3000 you were able to scrimp up for 2-4 months all of a sudden becomes a "man, I need a new catalytic converter" or "Uncle Sam wants his piece" or "dag, I didn't know my insurance wouldn't cover that."

I agree with bro-ham Keith that it's important to analyze expenses but honestly, on a macroscopic level, simply put: Shyt happens...

Get on your investing hat, take some risks and NEVER DEPEND ON A PAYCHECK FOR SAVINGS. Make you money work for you. That's the only and best way to save. That's my 2010 goal. Stacking and investing.