What percentage of income should I save? - MSN Money

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Putting a portion of every paycheck into savings can be an important step toward building financial security.

Parents, financial professionals and TV pundits like to press that point when they talk about setting lifetime goals, but it’s actually kind of a no-brainer.

Over time, the money you accumulate can help you pay for what you need (a down payment on a home, a car, and eventually retirement income) and what you want (vacations, new furniture, or a college fund for your kids).

But how do you know how much you should be saving every month? If your income, expenses and goals are different from everyone else’s, how do you determine that number? Is $100 a month enough? Or should it be 10 times that amount?

If you’ve been wondering how much money you should save, the answer is … it depends.

Rather than starting with a random dollar amount, it may be helpful to think in terms of a reasonable but consistent percentage of your take-home pay instead.

That’s one of the takeaways from the 50/30/20 budgeting plan made popular by Sen. Elizabeth Warren and her daughter, Amelia Warren Tyagi. It suggests savers should put 50% of their after-tax paychecks toward essentials like rent and food, 30% toward discretionary spending and 20% toward savings.

So, someone who takes home $1,350 every two weeks might put $540 a month into savings.

That’s just a guideline for getting started, though, so don’t panic if putting 20% into savings seems impossible right now. You can start at 10% or bump it up to 30% or more.

Those amounts can shift so you can make your plan work — especially if you have debts like high-interest credit cards, medical bills, or loans that need to be addressed first.

Here are some other points to consider when deciding how much of your income you should save.

It all starts with a budget

Ack. The b-word. Budgeting may be boring, but sticking to a realistic spending plan can make or break a savings plan.

By prioritizing monthly expenses — from keeping a roof over your head to gassing up the car to indulging in a frozen yogurt (or a frozen margarita) every Friday — you may be able to avoid impulse spending and hold on to more of your hard-earned dollars.

One of the ways you can track your spending manually is with a notebook or spreadsheets.

The term “savings” can apply to long and short-term goals

Once you determine what percentage you’ll be able to save from your salary, you may want to break down that amount even further, into separate designated “buckets” or sub-accounts for different goals, which could include things like:

An emergency fund

An emergency fund has the potential to turn life’s potholes into speed bumps.

It’s money you can use to pay for unexpected expenses, such as medical bills, home repairs and fender benders. And your emergency fund might serve as a lifeline if you lose your job and don’t have another source of income.

A good rule of thumb is to save at least three months’ salary — but you don’t have to come up with those dollars all at once.

You could start by saving a small amount each month — and you can always add to the fund when you get a raise, bonus, or tax refund. (You also should be prepared to replenish the fund if you have to use all or part of it at any point.)

The money in your emergency fund could go into a savings account at your local branch bank, or you might want to check out the benefits of a cash management account.

A bucket for short-term goals

Back in the day, your mom or grandma might have talked about belonging to a “Christmas club” — which probably sounded like fun at the time but was really just a holiday shopping fund stashed at her local bank or credit union. (And if Grandma took out the money too early, she paid a penalty.)

Some credit unions still offer Christmas clubs, but you can start your own short-term fund in your account. You can label the account “holiday spending,” or earmark it for any other short-term goal: “Fall Wardrobe,” “Beach Vacation,” or maybe a “New TV.”

And here’s a perk Grandma probably didn’t have: You may be able to set up an auto-transfer from your paycheck and track your progress.

A bucket for long-term goals

Setting aside money for a long-term goal — a down payment on a house, a honeymoon in Bali, a year in Paris with your bestie — can feel like a slow slog. But you may improve your chances for success if you set up an account for the money and designate a consistent amount to slip in there from every paycheck.

Depending on your timeline, you may want to check into a certificate of deposit (CD), or you could stick with that same high-interest online account, which you can build with automatic deposits and link to other accounts with a tracking app.

Retirement savings

If you have a 401(k) investment savings account available through your employer, you’re likely already building wealth for retirement with automatic contributions every payday. And if your employer offers any type of matching contribution, you have an opportunity to grow your money even faster.

Beyond that, it’s up to you how big of a slice of your savings pie you want to put toward retirement at any time.

If you’re just starting out, and especially if you have some debts to pay off, saving for retirement may seem like the least of your worries. But the earlier you start putting money away, the faster it can grow through the power of compounding interest.

And time is the investor’s true friend; it allows you to ride the ups and downs of the market without panicking as you work toward your goals.

If you don’t have an employer-sponsored plan—or even if you do, but you want more investment options or maybe more help than you’ve been getting — you can open your own traditional or Roth IRA outside of work. When considering which type of account to open, IRA or 401(k), you might want to keep an eye on what fees might be associated with each plan.

It’s important to note that employer-sponsored plans allow investors to contribute more annually than an IRA would (basic limit in 2020: $19,000 for a 401(k) vs. $6,000 for an IRA). And if the employer offers a matching contribution, that’s essentially free money you wouldn’t get from an IRA.

Deciding on your goals and setting a timeline

Goals are a good thing — they can provide motivation for saving. But they can’t just hang out there; they probably need some prioritizing.

Some goals will be easy to plot on a timeline. For example, if your wedding is in a year and you’re saving $6,000 for your honeymoon, you’ll need to save $500 a month.

Others goals will likely need more finessing. (The amount you might need for retirement, for example, can be tough to pin down.)

But you’ve got this. You’ve probably been editing your mental wish list since you were a kid saving for candy … no, a toy … no, a bike. And you’ll likely be doing that for the rest of your life. If there isn’t enough money, something has to go or, at least, wait.

Could you drive your old car for another year or two if it meant getting a house sooner? Should you work another year before taking time off to be a stay-at-home parent? Would a weekend in Vegas be ok this year if it meant next year’s vacation might be 10 days in Greece? Only you can make those choices.

Deciding how much money you’ll need when you’ll need it, and how long it will take to save it may seem daunting as you start toward each new goal.

But it also can help you stay motivated to note when you’re making headway. And you might even find new ways to cut expenses as you go—especially if you use an app to track your progress.

Don’t forget debt

According to the Federal Reserve Bank of St. Louis, Americans’ credit spending was greater than ever in 2019, and debt levels reached record totals. Overall consumer debt reached $13.9 trillion at the end of the second quarter of 2019, while the total amount of outstanding debt hit $4.1 trillion.

If you’re a part of those statistics, paying off those debts could be the most important part of your saving plan.

How’s that?

Any debt on which you’re paying interest can feel painful. But if you’ve missed some credit card payments and you’re paying the default rate, say 29%, you’re likely putting an awful lot of money toward your past instead of toward your future.

High-interest debt can drag you down, so it’s important to ditch it as quickly as possible. Once you know where you stand with your budget and your savings goals, you may want to start by building a sort of “starter” emergency fund, sometimes called an account buffer — then move forward with a personal debt reduction plan, like the debt avalanche, debt snowball, or the hybrid debt fireball, which focuses on paying high-interest debt in a way that can build momentum and keep you motivated.

Here’s how the fireball method works:

1. Categorize your debts as either “good” or “bad.” (“Good” debts are generally for things that have potential to increase your net worth, like student loans or a mortgage. “Bad” debt is usually considered to be debt incurred for a depreciating asset, like car loans and credit card debt.)

As you develop the list, note all the debts with an interest rate of 7% or higher. This is likely the debt you’ll want to focus on first.

2. List your “bad” debts from smallest to largest based on their outstanding balances.

3. Make the minimum monthly payment on all outstanding debts, then funnel any excess funds to the smallest of your “bad” debts.

4. When that balance is paid in full, go on to the next smallest on the bad-debt list. Blaze through those balances until all your “bad” debt is repaid.

5. When that’s done, keep paying off your debt on the normal schedule while also putting more into various savings strategies that will help get you to your goals.

Remaining flexible

Consistency can be a key to successful saving. Otherwise, it’s just too darn easy to let yourself off the hook from paycheck to paycheck, month to month and year to year. But that doesn’t mean your savings plan has to feel like a forced march.

Flexibility is also important.

A savings plan that seems smart and doable today may feel like torture six months from now. Or you might get a raise and decide your plan is actually far too easy and you could be socking away much more.

You might wreck your car. Get married. Have a baby. Get sick. Get fired. Or get hired for your dream job and have to move to Dubai.

Life changes. So it makes sense to tighten and lighten your budget — and the savings aspect you build into that budget — as necessary. If you’re tracking your expenses regularly, you may be better able to gauge how you’re doing — good or bad — and do something about it more quickly.

Anything is better than nothing

The good news is the tools that savers and investors use keep improving. Don’t be afraid to dream big but save small.

Maybe 20% of your income for savings is implausible right now, but any amount is better than nothing. You can still set goals and commit to getting there on a timeline that suits your needs. Developing a habit of saving can be a goal in itself.

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This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.

Gallery: How to increase your credit score 100 points in 7 easy steps (Mediafeed)

Need a boost in your credit score?

Your credit score is the gateway to almost all your financial goals — from applying for a mortgage to purchasing a car. Having a good credit score can help you get the credit you need, as well as receive better interest rates and terms on loans, cellphone service plans and more.

So, what do you do if your credit score isn’t top-notch? Here are tips for how to increase your credit score by 100 points:

1. Check your credit score

You can’t start improving your credit score until you know where you stand. There’s a common misconception that checking your credit score lowers it. This isn’t accurate — only a soft inquiry occurs when you check your credit and it won’t affect your score because you’re not formally applying for credit.

So, where to get your score? You may be able to access your credit score for free through your bank, credit union or credit card company. Bank of America, Discover and Wells Fargo are examples of financial institutions and credit card companies that offer free FICO scores to customers. If that’s not an option, you can get a free score at My LendingTree.

Your credit score will fall within the range of 300 to 850. Here are the rankings:

FICO Score ranges and ratings

850-800 — Exceptional
799-740 — Very good
739-670 — Good
669-580 — Fair
579-300 — Very poor

To get the best interest rate when applying for loans, your goal should be to have a good or better FICO Score. As you can see, a credit score increase of 100 points can have a huge impact on your financial life.

Here are the factors that affect your credit score, and how they’re weighted to determine your final score:

Payment history (35% of your score): Your record of payment — whether on time or late — has the most influence on your credit score.
Amounts owed (30% of your score): How much debt you owe in total — and your balances on revolving credit lines — are also heavily weighted.
Length of credit history (15% of your score): How long (or short) your credit history is can also positively or negatively impact your score.
Credit mix (10% of your score): Having a report with diverse accounts — like installment, credit card and retail accounts — can show creditors you have experience managing different account types, which can be also positive for your score.
New credit (10% of your score): Too many inquiries for new accounts can signal that you’re a credit risk and that can also lower your score.

2. Review your credit score report for errors

Once you know where your credit score stands, it’s time to check your credit reports from each of the major credit reporting bureaus.

Your credit report includes the positive and negative credit history that impacts your score. Credit reports list your financial accounts with payment history (e.g., credit cards, installment loans and retail accounts) and, in some cases, public records or accounts in collections.

Due to COVID-19, you can now request a credit report for free once a week from each of the three major credit reporting bureaus — Equifax, TransUnion or Experian — at AnnualCreditReport.com.

Scan your report to look for any errors, such as accounts that don’t belong to you or incorrect late payments. If you’re wondering how to increase your credit score by 100 points fast, erasing negative records on your credit report, like an inaccurate late payment or a delinquent account that was fraudulent opened in your name, could be one way to do it.

You can dispute errors on your credit report by opening inquiries with each of the three major credit bureaus online or by writing a letter. Be prepared to provide any documents proving the mistake in your credit report. Don’t forget to follow up if you don’t get a response within 30 days.

When you’re looking at your credit report, also take note of which parts of your credit history have room for improvement. Do you have high debt balances? Have you missed payments recently? These are two key areas to consider focusing on to help grow your score in the coming months.

3. Address any outstanding payments

The biggest part of your credit history that may be working against your goal of quickly improving your credit score is your payment history.

Missed payments that are more than 30 days late, for example, can lower your credit score roughly 100 points, and late payments stay on your credit report up to seven years.

The good news is that with time, the effect of late payments on your credit history will lessen. That’s because the impact of these payments gets smaller as they’re canceled out by more frequent and recent on-time payments.

Generally, the longer the account goes unpaid, the more impact it can have on your score, so don’t assume all is lost if a 30-day late payment pops up on your report. Clearing up the unpaid balance right away can help you avoid having it spiral into a more damaging 60-day or 90-day late payment.

Keep in mind that late payments — whether a few days late or months late — can affect more than just your credit standing. Credit card issuers often charge late fees and a penalty APR may also kick in when you miss a payment. Racking up late fees and high-interest charges can make it harder to control your debt balances.

4. Calculate your credit utilization ratio

Your credit utilization ratio compares the total amount of revolving credit available to you to the total balance you owe. A low ratio shows lenders you have more capacity to take on different lines of credit and have your balances under control.

Meanwhile, a high ratio signals to lenders that you may be having trouble managing your debts, thereby signaling you may be a risky customer. As a result, lenders may choose not to lend to you, or they may approve you for a loan or credit card with a higher interest rate.

To increase your credit score quickly, your credit utilization ratio should be less than 30% of your total available credit. To calculate your overall rate, follow these steps:

List your credit cards, as well as the balances and credit limits they carry
Add up your credit card balances
Add up your credit card limits
Divide your total balances by your total limits
Multiply by 100

Here’s an example of how this works if you had the following three credit cards:

Credit card	Balance	Credit limit	Utilization ratio
Card A	$2,500	$4,500	56%
Card B	$1,300	$2,000	65%
Card C	$850	$5,000	17%
Total	$4,650	$11,500	40%

To find out your overall credit utilization ratio, you would divide $4,650 by $11,500 to arrive at 0.40. Then multiple by 100 to get 40%. This would be your credit utilization rate, and as you can see, it’s above the suggested 30%.

Plus, you have to also keep individual card ratios low as well. Both Card A and B have too high a ratio and the balances need to be lowered if you want to see a credit score boost.

If your utilization rate is looking a bit high, you should focus on bringing those balances down, since 30% of your credit score is determined by the amount of debt you carry.

In fact, lowering your credit utilization ratio may be one of the fastest ways to increase your credit score by 100 points. LendingTree offers a free credit and debt analyzer that can also make recommendations based on your financial goals.

5. Keep your cards open and active

Again, the length of your credit history accounts for 15% of your credit score. If you — or your issuer — decide to close an inactive account, not only do you lose the available credit line, you will shorten the average age of accounts.

That’s why it can be important to keep your accounts open and active. Consider charging small amounts to your cards each month and setting up auto-payments to never miss a bill to ward off the card issuer from closing your account for inactivity.

Of course, for a credit card that comes with a high fee, you may have to review both the cost and your spending habits to see if it’s worth keeping the card open.

For example, if your travel card has a $250 fee and you’re not earning enough rewards to offset this fee right now, closing the account could save you money. In that case, keep a low-fee or no-fee credit card open so you still have some positive payment history to report to the credit bureaus.

6. Open new lines of credit sparingly

Make sure you’re pacing yourself when applying for new lines of credit since these qualify as hard inquiries that can lower your score. Don’t apply for credit card accounts one after the other, especially if you plan to purchase a house or car soon as you want your credit score to be in the best possible shape.

Opening multiple accounts is a sign that you may be a credit risk and it could hurt your chances of getting approved for a car loan or mortgage.

There is one exception to this rule: If you’re rate shopping for an installment loan like a student loan, mortgage or car loan, several hard inquiries within a 30-day period have the impact of a single inquiry.

In fact, rate shopping for an installment loan is actually encouraged because it lets you compare rates, fees and terms across multiple offers so you can choose the best one. Fortunately, you won’t be penalized for being a savvy shopper.

7. Maintain a healthy mix of credit types

Having diversity in your credit report is important. By maintaining both installment loans and revolving accounts, you’ll be showing lenders you can responsibly manage several different types of credit.

This doesn’t mean you should go out and apply for a personal loan if you only have revolving credit accounts at the moment. Only borrow what you need and what you’re capable of paying back. Just be mindful of the type of accounts you’re adding to your report while building credit, and know that diversity can be a very good thing that can help give your credit score a boost.

Benefits of a better credit score

Having a better score, or improving your credit score by just 100 points, can have a big impact on your financial life. Here’s why:

You may qualify for better rates: When lenders see that you have a good (or better) credit score, they’re more likely to trust you’ll repay any loan they give you. As a result, you may qualify for better interest rates — say for a personal loan. Qualifying for better interest rates on various lines of credit can save you thousands of dollars during your lifetime.
You may be more likely to receive credit offers: If you have a bad credit score, lenders will be less obliged to market to you. When your credit score is good, you’re more likely to have a wider selection of different types of loans, mortgages or other lines of credit when you need them.
Good credit scores help you when applying for everyday necessities: This includes cellphone plans, apartments or homes you’d like to rent, getting utilities turned on and more.

Having a good credit score is an excellent first step to getting a head start on your financial life. By following the steps above, you can start improving your score quickly.

This article originally appeared on LendingTree.com and was syndicated by MediaFeed.org.

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