While many celebrity financial strategies don’t work for those who aren’t making bank like the stars, Jay Leno’s philosophy can help average American families save up.
Jay Leno’s Saving Trick
First, let’s take a look at how Jay Leno saves money as a comedian. Leno’s main rule is to use only one source of income. For example, while earning money from The Tonight Show and annual comedy shows, he only took the money from his stand-up gigs. “I’d bank one, and I’d spend one,” he revealed to CNBC. “I’ve never touched a dime of my Tonight Show money. Ever.”
Turns out, this strategy might just work for other families and individuals, too, despite them earning less than Leno. And two-income families can benefit from the saving tactic even more. “By living off one income and saving or investing the other income, a two-income family simultaneously automates their investing and keeps lifestyle creep or lifestyle inflation to a minimum without having to fight over how much of each separate income to set aside or spend each month,” said certified financial planner Kaleb Paddock of Ten Talents Financial Planning.
In addition to putting at least 10% of their income toward retirement, families and individuals should have three to six months worth of their salary in their emergency fund. And Leno’s financial philosophy can aid Americans in more easily meeting these savings goals.
Does Leno’s Trick Work For Average-Income Families?
Can Leno’s rule work for average families? The short answer is “yes.” Of course, it might not work for every single family. But “with the family living on one partner’s income and then saving the other partner’s income, they should be able to hit major financial goals more quickly,” said Chanelle Bessette, banking specialist at NerdWallet. “These goals might include saving for a down payment on a house, saving for retirement, saving for a family vacation, or even just saving for a rainy-day fund.”
You don’t have to save the entire second income, though. Sometimes, saving just a part of it is worth trying. In the end, it’s important to stick to what’s comfortable. Any progress is good progress, and there’s no shame in saving 50% of the second income or even less.
You can start by creating separate checking accounts for the two incomes. One account should be responsible for monthly payments like credit cards, bills, and so on while the other should go straight toward a retirement or savings account. “Keeping the accounts separate can help with tracking how much is being invested over time and there’s no confusion of mixing expenses with investing transfers,” explained Paddock.
Certified financial planner Don Grant advises that families should plan and define all needs and wants, then create two accounts for each goal. “Some may be short-term, [and] other goals, like retirement, will generally have a much longer time horizon,” Grant said. “Develop a plan for how much will be invested into each account and invest it according to your specific needs and risk profile. Monitor the account and make adjustments as you reach your goals.”
Sources: CNBC, MarketWatch, SportCasting