How to Save Half Your Income

how to save half your income

I’ve mentioned before that saving half my income is part of my financial plan. Lucky for me, Brent is on board with this too, and we have a combined goal of saving $75,000 (which, for the record, is more than I make) in 2014.

I got an email from a reader who wanted to know how, exactly, normal people are supposed to save that much money. With her permission, below is her question (and my answer).


I’ve been following your blog for a little while and enjoying it very much. I am fascinated and at the same time, confounded by the concept of saving half my income – and a little bit ashamed that I don’t, too, I think. I used your example last night to total up what I had paid down last year – since that’s been a focus of mine – as a way of adding that as ‘saved’ and while I made good progress (certainly better than previous years!) it was still a little disappointing as a percentage of what I bring home.

When I read other ‘saving half my income’.. ‘$(something huge) savings in the bank’ blogs I start to feel a bit helpless that I can ever get there. Admittedly, I have a lot of debt left over from less well-off times and it’s taking a long time – years – to pay it down.

Still, I’m wondering if you have any advice about places to look for inspiration or step-by-step advice on doing this? I was listening to a finance show on OPB the other day and a woman caller mentioned ‘really knuckling down’ with paying off her debts and I thought “But what does that really MEAN? Never going out to eat again? Beans and rice for three years? Living in a shoe box? What?” ;)

Any help would be most appreciated! And sorry if this is rambly. I am inspired but also lost!

How to save half your income

In four “easy but not simple” steps.

First, define “savings”

For me, that’s the principle on my mortgage plus my IRA plus money in my savings account. When I had debt, I counted the debt payments as savings because every time you pay toward debt, you’re getting a guaranteed return. In fact, if you have debt, don’t start saving in another account until the debt is gone. You can build a nest egg more easily if you simplify your life and pay off some bills.

Pay off your most painful debt first

The one that makes you cringe. The one that keeps you up at night. The one that sits like an elephant on your chest when you think about your financial situation. That might be your highest interest card, but it might not be. It might be a debt you’re “old enough to know better” to have taken on in the first place. For me, it was my big dumb giant credit card debt, so even when that got transferred to a 0% for 24 month card, it was still my highest priority, until it was gone.

Withhold treats

Do you have multiple sources of debt? Withhold treats until another is paid. I didn’t let myself get a haircut until I finished paying my credit card.

Save First

The mentality of saving at the end of the month the leftovers won’t get you anywhere near 50% savings. I have my paychecks direct deposited at two different credit unions. 50/50. All extra income goes to my main credit union where the bills come out of, but the rest is deposited in my Twinstar checking account. They have an interest-bearing checking account that earns 2.25%, provided you make 12 transactions a month and don’t have more than $15,000 in your account (actually you can have more, but you only earn interest on the first 15,000). I make no more than 12 transactions per month, and I try to only use the debit card on that account for small purchases. The rest of my bills are automated, and come out of my Rivermark account. Rivermark and Twinstar are in the same network, so if push comes to shove, I can head up Hawthorne and ask the nice people at Rivermark to transfer money from Twinstar so I can pay the bills, but I try not to let things get that close to the edge.

Chart Your Own Course

Finally, remember, it’s your life. You can do what you want! I definitely do not eat just beans and rice. If you automate things, then you’re not faced with the day-to-day decisions of whether to have a cup of coffee or save money. If you save at the onset (or if you stop using credit cards while you’re in debt) you’ll know if you can afford the coffee.

Be Publicly Accountable: Start a Personal Finance Blog!

I’m serious, the best thing I ever did for my finances was to start blogging. The community here is super supportive, and there are blogs in all levels of finance. You paid off two credit cards last year — you know you can do this! Sometimes writing about it in a public space keeps you more motivated than you would be if nobody’s looking.

Join the Save 50% Facebook Group!

We have a Facebook Group where we talk about strategies, milestones, goals, and generally support each other on the path to saving 50%. Join us!


  1. Anne - Unique Gifter says

    Yay for reader questions! I am impressed that you have your pay cheques split in half right from the get-go. Paring down your lifestyle is really key to being able to do so, from renting cheaper places, to looking for ways to cut down your food bill, to shopping at consignment stores, to riding your bike instead of driving. I love Kathleen's suggestion of "when I finish paying off this one thing, then I get to treat myself with X."

  2. deardebt says

    I can't wait until I can save half. I am putting more than half of my income towards debt, so once it's going to things like savings, retirements and FUN, things will get so much better. Knowing how much I put towards debt gives me the confidence that I can do the same once I am debt free.

    • says

      You can, and you will! Some lifestyle inflation is inevitable (i.e. you won't live in a 1bdr apartment forever!) but you're setting yourself up for a secure financial future.

  3. Micro says

    Awesome advice although sometimes I feel people in the personal finance community are a little too quick to state don't save money until the debts are paid off. If you are talking about a savings account or a brokerage account, I agree. It's different though when you are talking about an IRA or a 401k. Those accounts have contribution limits that you can't get back even though you have extra money from the debt being paid off.

    I know I could shave a year off my student loan pay off date if I didn't max out my IRA and even more if I contributed less to my 401k (which I'm also maxing). I can't put that contribution money in at a later date though once my debt is payed off. In addition, not only do I miss out on the $11000 in contributions for two years, I miss out on all the interest it would have accumulated, which would be another $11000 over a ten year period at a 7% rate of return. In 20 years, that goes up to 33k and in 30 years its 78k in interest. Is one year less year of debt payments worth almost 80k? I didn't think so which is why I opted to max it out even though I still have debt on the table.

    • says

      That kind of depends on what your interest rate is. If you have student loans at, or near that 7% mark (of which many student loans are), then it's a wash, at best. If it's credit card debt, then it is absolutely in your mathematical/financial benefit to spike that debt before putting any money into IRAs/401ks.

      What's more: paying down the debt is a GUARANTEED return of the interest rate in future payments simply because that's interest you absolutely do not have to pay in the future. The IRA/401k are estimated average returns based on historical data. There is no way to assure that you are going to have that 7% rate of return, regardless of what the historical data say.

  4. says

    It hasn't been until recently that I have become enticed by the idea of saving more than 10% of my income. I had thought all along that 12% was better…but, in the past year or so I've thought that a savings rate that low is RIDICULOUS! Why is the American public-and everyone else, told 12%? Because of the debt that I've been paying on I've lost a lot of money that could have been invested. I am looking to meet "The One." Have a kid, and help out my mom with her retirement. I won't be able to do that on 12% and live the life that I would like to live. I think the key is to create a lifestyle where you don't feel "lack" and are content with what you have. Thanks for the post and the food for thought.

    • says

      YES! I had a goal to have my financial house in order before I could even entertain the idea of getting married. I didn't want my future husband to have to inherit my car loan or my student loan (and CERTAINLY not my credit card!).

  5. Charles says

    Kathleen will that allow you to hit the maximum contributions for retirement accounts? When you save that money is that invested? I'm always amazed at people who can save 50+% as my wife and I love to eat out.

  6. Sharon J. Gilman says

    I just found your blog from Budget and the Beach and I love it already! I've just started a pretty intense savings plan, so your title immediately caught my attention. Just out of curiosity, which Portland do you live in? Maine? Oregon? I'm sure there's more than just those lol. I grew up in Yarmouth, ME so I was just curious. Anyway, I look forward to following you this year :) Happy blogging!

  7. debtfreetejana says

    This is wonderful! My goal for this month is to live of my salary and use my side-hustle money (waiting tables) to live on. Outside of debt, I have no bills (I moved back in with my parents to be able to pay more on loans) besides gas, groceries, gym and skincare. I haven't tried it before, so we'll see how it goes!

  8. says

    Nice post, Kathleen! I think if you count your mortgage principal in there that the idea of saving half becomes a little bit more reasonable. We count our retirement and college savings as well, which doesn't leave us all that far off of that number.

  9. says

    Great response to the reader's question. I don't save half my income right now, but maybe in the near future (If I increase my income 30%!) I agree with most everything Kathleen says except paying off ALL debt first (unless I'm misunderstanding something here). I think when it comes to credit cards or consumer debt, then yes, pay that off first before saving. But student loans with low APR's or mortgage loans doesn't make sense – you'd never get around to saving!

    • says

      depends on how much you have in student loans. i had 30k when i graduated in 06, and still had about 26k in loans when i got serious about paying them off three years ago. Last year, I paid off the last of my student loans. And now my husband and I are focused on saving. It only took three years, so yes I think you can definitely pay off debt first then save.

  10. says

    very impressive! I haven't considered my pre-tax contributions as part of my savings percentage, but I guess I should since that is a big chunk too! I am happy when we do 25% of our after-tax take-home pay.

  11. lisavstheloans says

    Rewarding myself with treats (manicures, massages, etc.) has definitely helped me so far with my financial goals!

  12. says

    I'm not entirely clear on if you're for or against this, but I advocate for starting an emergency fund at the same time as you're paying off that debt. We got the fiance's debt paid off at one point. Then the car broke down the next day. It needed repairs as we needed to work, and we had no savings. So it had to go on the credit card. The numbers might work out a little bit better if you throw it all at debt first, but the psychological toll of paying it off and then having to dive right in again in a very big way was not worth the opportunity cost.

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