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Course: Financial Literacy > Unit 2
Lesson 3: Saving money- Why and how to save
- Why and how should I save money?
- Planned and unplanned expenses
- I am ready to save. What is the next step?
- Saving wisely: emergency fund
- Emergency fund
- Saving wisely
- Saving wisely: planned expenses
- Paying yourself first
- Pay yourself first
- Paying yourself first
- What are different types of savings accounts?
- What is interest and how does it work?
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Paying yourself first
Paying yourself first means that before you spend any of your money on bills, food, or other expenses, you put some of it into savings. This way, you're making sure that you're saving money each time you get paid, rather than hoping there's something left over at the end of the month. This can be a good way to build up your savings over time and get into the habit of spending less than you earn. Created by Sal Khan.
Want to join the conversation?
When dividing the cost over weeks, isn't it 48 weeks, not 52 weeks? Since there are 12 months and 4 weeks make 1 month; so 12 times 4 equal 48.(6 votes)
Let's do it this way: If you get paid weekly, budget your weekly income to pay monthly and annual costs as if the year included only 48 weeks. Then you'll have 4 weeks extra income to invest. BUT, if you get paid monthly or quarterly, use those figures to pay monthly bills. You won't have the "extra" at the end of the year, but neither will you get behind.(6 votes)
- Is the 50-30-20 a good tool for saving.(3 votes)
This tool has worked for many people, but you won't know if it will work for you until you try it. Start now.(10 votes)
What If we don't know how much we'll get paid, like a contract job or something similar? For example, If you're main income comes from YouTube, you could get a lot of money one week after uploading 3 videos, but the next week you don't get as much money whether it be because your video got demonetized, blocked, it didn't get enough impressions, or you had to miss an upload. I guess I just have to guess based on the average amount of money I normally get paid and keep it safe until my next income? Sheesh it sounds complicated. I'm mainly asking this because I actually am trying to get monetized on YouTube right now.(4 votes)- In a case like that, consider your YouTube income a side-gig, and keep on flippin' those burgers for steady income.(3 votes)
- So this chapter mean that 50/30/20 is actually 50/20/30 by order of priority.(4 votes)
- Are the numbers listed in order of their numerical value, or in the order of their importance? I don't think it matters which, so long as you follow those numbers in the terms for which each is assigned.(2 votes)
- What percentage of a pay check should I put in the my savings for pay myself first?(3 votes)
- What does the 50-30-20 tool tell you? Look at that, and start somewhere.(3 votes)
What if I want to buy a house that costs 1,000,000 $ now & I want it in 5 years,
The price of the house is expected to rise during this period & inflation can occur, how much should I save per month?(3 votes)- I see that you are back after about 5 years of not asking much here. I note that at your last profile update, you were 24 years old. Is that the case now?
The answer to your question depends on whether you wish to save the full purchase price of your desired house when the time comes to buy it, or whether you are only saving for the down payment. The answer also depends upon what resources you already have (are you starting from zero, or do you already have something?). Last of all, and this is always the question with real estate, is your location. In some places, like Pakistan and Turkey, inflation is totally out of control. So, what $1,000,000 will get you in 5 years may be a considerably smaller house than the same amount of money will get you today.(2 votes)
- What if our savings don't end up being enough? For Example, the laptop was 624 dollars at first but over the span of the year, inflation has made it go up to 724 dollars, What would I do then?(3 votes)
- In such a case, you have to wait longer and save more in order to get that laptop. But, be of good cheer, there are cheaper laptops out there.(2 votes)
Why would we pay ourselves first shouldn’t we pay the bills?(3 votes)- "Paying yourself first" is not about paying your bills last, it is about paying yourself before you spend money on things that you could do without. Certain bills are a necessary part of life. You may have to pay rent, transportation, insurance and stuff like that. OK. But before you add a coffee shop latte every day because you like to study there, or a pizza in a nice restaurant rather than a sandwich at home, you should put something into the savings or investment account. Don't build up debts (and bills to pay) for things like online gambling or weekend recreation if you are not saving.(2 votes)
What if you only get an allowance and it is lower than your goal to save in a month(2 votes)- The first thing to do is to ask whoever gives you that allowance to increase it to match your goal.
OR
you could reduce your goal to match the portion of your allowance that is available for saving.
OR
you could get a job to increase your income.
BUT
If your allowance was coming from me, and you got a job, I'd stop paying the allowance. It was given in part so you'd use your time for self improvement opportunities. It wasn't about money.(3 votes)
From which one I should put aside for my planned expenses? 50% needs? 30% Wants? 20% saving?(2 votes)- "Planned expenses" might find a home in any of those categories.
For example: Saving is 20% anyway. You Do That First.
When you are independent of your parents' support and need to pay your own rent, your own transportation, insurance, food and clothing, you can call each of those a "planned Expense" because some of them come up regularly in set amounts (rent is set, monthly bus pass is set, insurance is set, loan payments to retire your student debt are set; and what you need to spend to eat at home and make lunches to take to work is set). Clothing is one of those things for which you set a monthly budget, saying "I can spend $X per month on clothes and shoes." and not going over that.
If you want to take a skiing vacation to Chile or Switzerland, that's a "want", but you could see it as a "planned expense" if you budget for it a year or so in advance, and trim your other spending on wants in order to have the money for the trip when the time comes.
Saving, like I said, comes first. But even part of that could be a planned expense. For example, if a certain portion of your income was automatically deposited into an IRA or 401(k) each month, then, though that is savings, it is "planned for".
In sum.
You get a certain amount of income each pay period.
There are different ways to sort it out when making a budget.
50/30/20 is one way.
Planned expenses and unplanned expenses is another way.
Mixing the methods is confusing.(3 votes)
Video transcript
- [Instructor] You might
have heard the term, paying yourself first. And this just means put
your safety, your needs, especially your future needs first before you think about other things. So let's give ourselves an example. Let's say that you wanna
buy a laptop that is $624 and you currently do not have
the $624 to buy that laptop. And that laptop will
help you with your work, maybe it'll help you with school or it can help your family in some way. It can also provide other
benefits that you want. So you want your future
self to have this laptop, and you say, I want this laptop over the course of the next year. So you want this in a year. The paying yourself first
philosophy would say, all right, every paycheck,
how much do I have to put aside first
before I do anything else to make sure that I'm gonna
get my hands on this laptop? So let's have an example. Let's say that I'm paid weekly. If we are paid weekly, how
much do we have to put aside for every paycheck in order
to at the end of the year have $624 saved up for the laptop? Well, if we're thinking weekly, we have to save that $624
over the number of weeks in a year. So we're gonna divide that by 52 weeks. And you could do that by hand or you could punch that into a calculator. And you're going to see that
you're going to have to save $12 per week which
doesn't feel like a lot. And so what you would
do is every time you get that paycheck before you even
think about anything else, you would take that $12 and transfer it maybe into a savings account. That's kind of your laptop savings fund. What if you instead of
getting paid weekly, you're paid biweekly. So that means you're getting
paid every other week or every two weeks. Well, then you're going to have to save twice as much since it's not covering just one week of savings
it's two weeks of savings. So in that situation it's going to be $24 per every two weeks. What if you are being paid semi-monthly? And you might think that these are similar that if you're paid every other week or if you're paid semi-monthly which means you're paid twice a month, but months don't have exactly four weeks or at least most months don't
have exactly four weeks. And so the way that you would
calculate for semi-monthly is you say all right,
there's 12 months in a year so there's 24 semi-months in a year. So it would be $624 divided
by those 24 semi-months I guess you could call them. And then that would get you $26, $26 per semi-month. And then last but not least,
if you're paid monthly and I'll do that in a
different color for kicks, if you're paid monthly, well, then you're gonna take that $624 and divide it by the 12 months and you would wanna set
aside $52 per month. So this video it gave us
a little bit of practice thinking about our paychecks
whether we're getting paid weekly, biweekly, semi-monthly or monthly. But it's really thinking about, hey, you have a pretty big goal over here, but if you divide it by
the number of paychecks that you're getting in a year, you can then think about how
much you have to set aside paying yourself first every paycheck so that it will add up
over the course of a year whatever time period
you're thinking about, so that you can get and reach your goal.