10 tips for saving money from your salary

If you’re a typical North American, chances are you earn the bulk of your income through employment and will continue to do so for the rest of your working life. As such, knowing how to save money from your salary is imperative for building long-term wealth.

In this article, I’ll provide some tips for setting money aside every single payday!

How to save money from your salary: 10 tips

Note that while I use the word “salary,” these tips apply to anyone earning a consistent amount of money each month. That includes contractors with a reliable client base.

1. Work towards paying yourself first, every single payday

A stack of $50 bills in someone's jeans pocket.

Paying yourself first means prioritizing your financial future. It’s about saving and investing then spending what’s left rather than approaching things the other way around.

This starts with making sure you don’t commit the bulk of your income to someone else years in advance. In other words, don’t bite off more house, car, credit card debt, or anything else than you can chew.

First, figure out how much you’d like to save or invest (aka pay yourself) every payday. When organizing your finances, don’t even think of that amount as being discretionary.

Then, determine how much you can comfortably spend on other things (including essentials like your car, bills, house, etc) by dividing the money that’s left.

Now, if you’re already drowning financially because of past poor decisions (i.e. tons of credit card debt), you may not be able to implement this budget immediately. And you know what? That’s okay. Achieving excellence in personal finance is a process.

Work towards making your budget feasible. A financial advisor can help you figure out the best way forward, whether that means downsizing, paying off certain types of debt aggressively, or anything else.

If you’re lucky, though, you’ve stumbled on this article before tying yourself up with poor financial decisions. If that’s the case, you can start paying yourself first right now.

2. Don’t be aggressive at the cost of consistency

While saving as much money as possible from every paycheck is great, make sure you’re not being unsustainably aggressive.

This is a mistake I made when I first got into personal finance. I was so caught up in saving and investing that I often had no money left over for basic things like groceries. Instead, I had to use credit, which defeats the purpose.

Be reasonable about how much you can set aside from every paycheck. Choose an amount that’s easy to maintain over the long haul, which will help you form good habits that scale as you earn more.

3. Automate your saving

A man in a suit holding and using a smartphone.

If you tend to spend money the second it hits your bank account, consider using automation to direct those funds towards a savings or investment account before you have a chance to touch it.

Most major banks have this feature built in. It’s really easy to set up too, especially if all of your accounts are at the same institution.

Thanks to a concept known as mental accounting, you’re less likely to spend this money once it’s been placed in an account specifically meant for saving or investing.

However, if you’re worried about spending the money even after it’s been automated into a savings or investment account, I’d recommend keeping those accounts at a slightly less-accessible institution.

Personally, I use Wealthsimple. Withdrawals take a couple of business days, which is fast enough for most emergency expenses but slow enough to make impulse purchases unlikely.

If you’re saving towards retirement, you can also consider asking your employer to deduct a set amount every paycheck and put it in an investment account for you. This is pretty bulletproof; you can’t spend the money if it never actually hits your checking account!

Not all employers offer this, though, so be sure to ask ahead before making it part of your plan.

4. Take advantage of applicable work expense tax credits

If you use your own money to purchase work supplies, make sure you’re claiming it on your tax return where applicable. For example, teachers in Canada and the United States can deduct eligible classroom supply expenses from their taxable income for the year.

Don’t just claim these things on your own, though; you should always file taxes with a professional who can ensure you don’t make mistakes that trigger an audit.

Now, if you as an employee are regularly making substantial work-related purchases, don’t be afraid to communicate that with your boss. If the items are truly essential, they may start purchasing them for you or, at the very least, reimburse you.

This doesn’t necessarily apply if you’re an independent contractor. Under this working arrangement, employers generally expect you to cover expenses on your own. To compensate for this, independent contractors in Canada and the United States have a wider range of eligible tax deductions than basic employees.

Again, work with a licensed tax preparer as mistakes in this department can cost substantial amounts of money, not to mention the stress.

5. Take advantage of tax-deferred savings accounts

A clock sitting beside stacks of coins.

Tax-deferred savings accounts are great because they allow you to actually keep more of your salary every year. It’s like getting a raise without actually getting a raise!

The 401(k) in America and RRSP in Canada are two prominent examples of tax-deferred savings accounts. In either country, the government allows you to deduct money you deposit in these accounts from your taxable income for the year.

Say, for example, that your pre-tax salary is $100,000 and you deposit $10,000 in a tax-deferred account. The government will then tax you as if your salary was just $90,000, which could equate to thousands of dollars in savings depending on your bracket.

Speak with a financial advisor before doing this, however, as there are consequences if you ever need to withdraw money from a tax-deferred account early.

6. Spend with cash whenever possible

Credit can easily derail your carefully-planned budget for each paycheck. It’s much better to pay with cash when you can.

Say you earn $3,000 every two weeks and allocate $150 of it to entertainment. If you only spend what’s in your checking account, anything above that amount will have to come out of another category. This is simple and ensures your spending stays contained.

Things get messy, though, when you spend with credit. You see, the average American has $22,751 in available credit. That’s much higher than the average American salary of just over $3,700 per month. What this means is that the typical American can substantially inflate spending in all categories of their budget at any given time.

For example, they can spend $200 on entertainment instead of the allotted $150 yet not be forced to pull $50 from any other category to make up for it.

If you get in the habit of doing this, it will become very difficult to actually save money from your salary. A substantial chunk of every paycheck will go towards paying off the budget deficit from previous months.

The solution? Pay with cash (which includes your debit card) as much as possible. Subject yourself to the hard limits imposed by your finite salary rather than stealing from your future self.

7. Don’t just save – invest

Dollar bills set in soil to represent the concept of investing.

Knowing how to save money from your salary is great. One problem you’ll likely run into, though, is the realization that cramming money into a savings account with no clear objective can get boring.

Savings accounts come with an average interest rate of 0.9%, which means your money won’t be growing very quickly. In fact, if you’re anything like me, you’ll probably end up caving out of boredom and spending the money on something more exciting.

Enter investing.

The U.S. stock market has returned an average of roughly 10% every year for the last century. That presents a massive incentive to keep your money invested – and keep depositing more of it – rather than buying junk.

I mean, if you save $10,000, suddenly you’re getting an average of $1,000 every year simply for keeping your money invested. With $100,000, you’re looking at $10,000. For doing nothing. It’s a no-brainer.

The growth compounds, too, meaning that the longer you let your principal and profits sit, the faster your wealth will accelerate.

This is very exciting and can keep you engaged in the process of paying yourself first.

Now, I’m not saying saving in a plain old savings account is useless. In fact, saving and investing are both absolutely essential for building your wealth, as I discussed in this article.

However, you shouldn’t be parking all of your money in a savings account. Generally, professionals advise keeping enough for an emergency fund along with short-term goals and then investing the rest.

If you have no idea where to begin with investing, check out this piece for a great introduction. In this article, meanwhile, I discuss some ways to start investing with little money.

8. Save your raises

Many people get raises and then immediately go out and buy nicer vehicles and adopt expensive habits. This is something known as lifestyle creep and it results in one’s salary increases benefitting salesmen rather than themselves.

Don’t be that person.

If you have a roof over your head, food on the table, clothes on your back, and a means of getting to and from work safely, do you really need to upgrade anything? Probably not.

Instead, use your raise to give yourself a raise! Add your salary increase to the amount you identified based on the first tip in this article.

Do the same with bonuses, too.

9. Break your monthly budget into smaller chunks

An iPad sitting on a table with the calendar app open.

A month is a fairly long time when it comes to budgeting. Lots can (and will) go wrong.

If you find it difficult to stay on track, break your budget down into biweekly chunks. For example, if you budget $200 for dining out every month, chunk it down to $100 per pay period, which may be easier to keep track of.

It also helps you pace yourself. As soon as you exceed $100 in dining for the cycle, you’ll know you’re off track.

If you think of budgeting in terms of the entire month, though, it’s easy to rationalize impulsive spending by saying, “it’s alright, I’m still under-budget for the month!” When you hit your $200 allocation just two weeks in, however, you’ll have to live without dining until the next month.

Actually, let’s be honest. You wouldn’t give up dining in that scenario – you’d just find some way to inflate your budget.

Avoid this by visualizing your budget in shorter terms.

10. Know your real salary

In my opinion, you should be making financial decisions (including how much to spend on car or mortgage payments) based on your take-home pay rather than what your salary is on paper.

It’s a more practical approach because, after all, your take-home pay is what you actually have available for spending and saving. Your pre-tax salary, meanwhile, is less-relevant on a daily basis – especially since it’s likely tens of thousands of dollars higher than what you actually bring home.

Thankfully, it’s easy to figure out your take-home pay. There are plenty of free Canadian and American tax calculators online. If you’ve been earning the same amount of money for several years, you can also refer to prior tax returns.

(Bonus) Don’t forget to think long-term, too

Learning how to save money from your salary is a great foundational step. In my opinion, though, companies have tricked people into thinking solely in terms of months and years rather than decades.

You see this at car dealerships, where salesmen frame conversations by asking how much you’d like to pay per month rather than talking about the car’s actual cost.

By doing this, they can sell you a more expensive car and just give you a longer loan term to fit the monthly payment into your budget.

This is just one example of how thinking about your salary solely in terms of the next month or year can actually set you back in the long run.

The solution? When planning to save money from your salary, think about the next 10 years or more.

Think about how much money you’ll be earning via your salary over the long haul and make a plan to keep as much of it as practically possible (which includes building equity in assets like your home). View your monthly and yearly progress in terms of how it contributes to this long-term goal.


I trust this guide has been useful in showing you how to save money from your salary. It won’t always be easy but by staying the course, you’ll increase your chances of achieving financial independence.

About the author

Brandon-Richard Austin

Brandon-Richard Austin is the founder of Rinkydoo Finance. He is an avid investor and digital marketer for startups and publicly-traded companies alike.