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A lot of people often ask me about how I save money and my views on it. Disclaimer: these are my personal experiences and opinion, so they might not apply to your circumstances. In this post, we'll talk about how much you should save from each paycheck and where/how to invest money.

How much should you save from each paycheck?

A: I usually try to save at least 50% of my after-tax paycheck. This means that for every month I work, I get an extra month of security. The money is for in case I lose my job or if/when I want to start my own company.

I discourage people from saving a specific amount because it doesn't scale long-term. For example, if your goal is only to save $500 each month, that doesn't scale with you through the years. If after five years, you're still saving $500/month after inflation and promotions, your savings won't go far.

The benefit of trying to save a certain percentage instead of a certain amount means that you'll most likely contain your spending habits.

Even when I was making less money, I still aggressively try to save at least 50% of my paycheck. There were times when it wasn't reasonable to hit the goal. For example, when I co-founded a company and went through a startup accelerator, we only received $20,000 to last three months between four people. I was super frugal and lived off events that had free food or ate snacks that were provided.

For a lot of people, this seems really extreme, and for me, it was making sure my bank account wouldn't get depleted.

On the flip side, even when I was making six figures, I still drink Soylent. A typical lunch in San Francisco can range from $10-$15. I drink Soylent because the lunch options aren't good, and it's cost-effective.

How much money should you save?

A: My goal is to have at least 12 months of runway in case I lose my job, or an emergency comes up. After stashing away 12 months, then I look into investing. The stock market is unpredictable, so if the market takes a downturn, I don't want to be out of money.

For the one year of runway, I recommend putting it in a high-interest savings or checking account that earns 1-5%. You can also put part of it in a CD account, but I haven't seen any high interest offers lately.

For you, it might be 3-12 months depending on your circumstances.

If you're trying to save money, why do you use credit cards?

A: My perspective on credit cards is that you should treat it like a debit card and not spend outside your means. I pay off my bill in full every month, and I'm optimizing for rewards on my everyday spend.

What should you do if you already have credit card debt?

A: If you already have credit card debt, then I would build up a smaller nest egg and aggressively pay off the loans.

For me, I would cut back on all unnecessary expenses like dining out and movies.

What about balance transfers?

I think balance transfers are fine in the short-term if you need it. Balance transfers are like a ticking time bomb waiting to go off because the debt still exists. Read more about balance transfers in this post.

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