Exactly How You Can Save $10K This Year On A $40K Salary

By | Wednesday, January 13, 2016

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Last week, while flying back to LA from the east coast, I made a spreadsheet-on-steroids for my 2016 budget. Because I do a lot of freelance work, my budget sheet is significantly more complicated than when I had a salary, benefits, and a parent company. I have a line for each client, and how much I bring in from them each month, and those numbers fluctuate. When I set a savings goal for the year, it’s hard to know what would be a 100% realistic goal because, honestly, I’m not entirely sure how much money I’ll earn in 2016. As a result, I’m well-practiced in the art of developing savings strategies based off projected earnings. In fact, last year, I quit my entry-level job and went freelance, but was still able to save very well. Here’s a breakdown of how I would personally recommend saving about $10K if you make a salary that is around $40K/year.

First, you need to calculate what your annual salary comes out to in a month: $3,333

After taxes, that is (approximately): $2,222

Of course, everyone’s expenses are going to be different. If you live in New York City, you’re paying a lot more in rent than if you’re living in upstate New York. For argument’s sake, I used my own expenses as a litmus test. My monthly expenses come out to about $1,450. Within this budget, I’ve covered all my living expenses (including health insurance and car insurance), and built in $240/month for groceries and $150 of allotted “fun” money.

Looking at my expenses versus the example income of $3,333, I can see — now more clearly than ever — how millennials in their first few post-grad years can end up in debt. When you’re making roughly $2,200 after taxes, and your living costs come out to $1,500+, saving on top of that is extremely difficult. Even if you don’t spend at all on socializing for a month, you would end up putting $700 away every month, which comes out to saving $8,400 for the year. And if we’re being completely honest, I could easily spend that entire $700/month on social engagements. I never would, of course, but most of my friends who live in New York City pay more in rent than I do (I pay $750) and therefore only have about $500 left over after paying their living expenses. And it’s not hard to spend $500 in a month going out in New York City.

I wanted to do this breakdown based on $40K/year because I would say it is the mean income of those I graduated with (who are less than three years out of school and work predominantly in communications). In order to save $10K in a year, you have to save $833/month. If your expenses are anywhere close to mine, I would say the most you could save from that is $700. However, you aren’t going to want to deprive yourself of occasionally going out and having fun. Realistically, saving $600 of your current income is (in my opinion) an attainable goal.

That leaves $230 to come up with every month.

First, see if you can cut your monthly expenses by about $70/month.

It honestly depends on whether or not you want to make savings a priority. If you are currently paying about $300 in loan payments but want to make income-based payments, thus reducing your payments, you could end up paying under $100/month at the income bracket of $40K/year. This would give you $200 extra dollars per month, but it would also mean not getting ahead on loans with accruing interest. For me, I don’t have loans and I cannot cut my health insurance (which is about $250). However, I called my car insurance company, and I can cut some of my bill with them. I can also be more thrifty when it comes to grocery shopping, and could likely get that number down to $200/month.

Then, aim to earn an additional $200/month in #sidehustle money that you can deposit directly into savings.

If you can successfully cut your expenses by $70 and earn an additional $200, then you’re actually bringing in more than your savings goal. Personally, I think that is best because then you aren’t having periodic anxiety attacks about pinching pennies. Last year, I brought in about $60/week babysitting on top of my freelance income, which meant I was getting $240 in cash every month. I deposited it directly into my savings account without a second thought, and then I was already ahead of my savings goal. If your work offers overtime, that is another way to bring in the extra $200/month. All you need to do is promise yourself that $200 of your overtime money will go directly into savings.

The last way you can meet a $10K savings goal is to save closer to $700/month, and then do a month of aggressive savings to bring you from $8,400 saved to $10K saved. Essentially, if you want to participate in a #nobuy challenge or not eat out for 30 days straight and drastically cut your expenses for a month, then you have the potential to throw a lot of extra savings into your account at once. If you come from a family who does birthday and holiday presents, you can also consider banking your gift money, which is what I did last year.

In the last three years, I’ve learned that saving $10K on an entry-level paycheck is incredibly hard. I have honestly never done it successfully. When I got my first post-grad full-time job (which paid less than $40K), my goal was to save $2K. While I stepped it up the next year, my point is that finding spare money in your budget is a daunting task. Whatever your savings goal for 2016 might be, hopefully this got you thinking about how you can achieve that goal.

Are there other methods you’ve used to meet a savings goal on an entry-level paycheck? Let us know in the comments.

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