Sometimes the hardest thing about saving money is just getting started. This step-by-step guide on how to save money can help you develop a simple, realistic plan for saving toward goals, big or small.
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1 – Record your expenses
The first step to saving money is figuring out how much you spend. Keep track of all your expenses, i.e. all coffee, household items and cash tips. Once you have your data, organize the numbers by categories, such as gas, groceries, and mortgage, and total each amount. Consider using your credit card or bank statements to help you with this.
2 – Make a budget
Once you have an idea of what you spend in a month, you can start organizing your recorded expenses into a workable budget. Your budget should describe how your expenses match your income – so you can plan your spending and limit overspending. In addition to your monthly expenses, be sure to include expenses that occur regularly but not every month, such as car maintenance.
3 – Plan to save money
Now that you've made a budget, create a savings category within it. Try to save 10 to 15% of your income. If expenses are so high that you can't save much, it may be time to cut back. To do this, identify non-essential items you can spend less on, like entertainment and meals, and find ways to save on your fixed monthly expenses.
Tip: Consider the money you put into savings a regular expense, similar to groceries, to reinforce good savings habits.
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4 – Choose something to save
One of the best ways to save money is to set a goal. Start by thinking about what you can save – maybe you're getting married, planning a vacation or saving for retirement. Then figure out how much money you will need and how long it will take you to save it.
Here are some examples of short-term and long-term goals:
Short term (1 to 3 years)
– Emergency fund (3-9 months
living expenses, just in case)
- Vacation
– Entrance of a car
Long term (4+ years)
– advance on a house or a
remodeling project
– your child’s education
- Retirement
If you're saving for retirement or your child's education, consider putting that money into an investment account. While investments come with risks and can lose money, they also create the opportunity for compounding returns if you plan an event far in advance.
5 – Decide your priorities
After your expenses and income, your goals are likely to have the biggest impact on how you allocate your savings. Remember long-term goals – it's important that retirement planning doesn't take a backseat to short-term needs. Learn how to prioritize your savings goals so you have a clear idea of where to start saving. For example, if you know that you will need to replace your car in the near future, you can start saving money.
6 – Choose the right tools
If you're saving for short-term goals, consider using these insured deposit accounts:
- Savings account
- Certificate of deposit (CD), which locks up your money for a fixed period of time at a rate that is typically higher than savings accounts
For long-term goals, consider:
- FDIC-insured individual retirement accounts (IRAs), which are tax-efficient savings accounts
- Securities, such as stocks or mutual funds. These investment products are available through investment accounts with a broker. Please remember that securities are not FDIC insured, are not deposits or other obligations of a bank, and are not guaranteed by a bank. They are subject to investment risks, including the possible loss of your principal.
Tip: You don't have to choose just one account. Look closely at all of your options and consider things like minimum balance, fees, and interest rates so you can choose the mix that will help you save for your goals.
7 – Make automatic savings
Almost all banks offer automatic transfers between your checking and savings accounts. You can choose when, how much, and where to transfer money, or even split your direct deposit so that a portion of each paycheck goes directly to your savings account. Splitting your direct deposit and setting up automated transfers are simple ways to save money since you don't have to think about it and generally reduces the temptation to spend the money.
8 – Watch your savings grow
Review your budget and check your progress every month. Not only will this help you stick to your personal savings plan, but it will also help you identify and fix problems quickly. These simple ways to save might even inspire you to save more money every day and reach your goals faster.
