This is the ‘Jay Leno rule’ of saving money. You don’t have to be rich to do it

Comedian Jay Leno

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Comedian Jay Leno has openly shared that while he drew two salaries, one from his ‘Tonight Show’ hosting gig and one from the 150 annual comedy shows he appeared on, he never spent any of his ‘Tonight Show’ salary and instead, he only spent what he made doing stand-up. “He would bet one and spend one,” the TV star. saying CNBC in 2016. “I’ve never touched a dime of my ‘Tonight Show’ money. Ever.”

Okay, but Leno is rich, you might be tempted to say. Still, professionals say this “spend one, save one” philosophy may work for some families. “This idea is a really smart behavioral finance approach to managing the income of a two-income family. By living on one income and saving or investing the other income, a two-income family simultaneously automates their investments and keeps slow lifestyle or lifestyle inflation to a minimum without having to fight over how much of each separate income to set aside or spend each month. says certified financial planner Kaleb Paddock of Ten Talents Financial Planning.

In fact, professionals say that in addition to saving 10-15% of their income for retirement, even in this period of high inflation, families should have 3-12 months of savings in an emergency fund, preferably in a very accessible place that pays interest. . Fortunately, high-yield savings accounts are paying much more than they used to (You can see the best rates you can get on savings accounts here.).

“With the family living off one partner’s income and then saving the other partner’s income, they should be able to reach major financial goals more quickly. These goals can include saving for a down payment on a house, saving for retirement, saving for a family vacation, or simply saving for an emergency fund,” says Chanelle Bessette, banking specialist at NerdWallet.

Of course, this is much easier said than done. Many two-income families struggle to get by even though both partners contribute money. And even if you can’t save your entire second income, trying to save more is a worthwhile goal, pros say. (You can see the best savings account rate you can get here.)

How could families make the ‘spend one, save one’ rule work? Paddock says that couples should create two separate checking accounts for the two incomes. “In one checking account, all bill and credit card payments would be paid automatically with income, while the other checking account may have an automatic transfer to a brokerage or retirement account every payday or once a month. to effectively sweep revenue. to an investment or savings account. Keeping the accounts separate can help with tracking how much is being invested over time and there is no confusion of mixing expenses with investment transfers,” says Paddock.

Certified financial planner Don Grant advises reviewing your expenses and offsetting them against your income. “Take the time to clearly define wants and needs. Cover necessities first, and if there’s a surplus, those assets can be put toward more discretionary spending,” says Grant. From there, he recommends setting up two accounts specifically dedicated to each goal. “Some may be short-term, other goals, like retirement, will generally have a much longer time horizon. Develop a plan for how much to invest in each account and invest according to your specific needs and risk profile. Monitor the account and make adjustments as you reach your goals,” says Grant.

Because this process assumes that one partner’s salary is enough for your household to live on while the other salary is saved, you may want to adjust the numbers to what is most comfortable for you, such as saving 50% of salary of one of the partners. “Any progress toward savings is good progress. It’s also a good idea to make sure both partners have access to all joint checking and savings accounts in the household and that money decisions are made together,” says Bessette. (You can see the best savings account rate you can get here.)

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