Saving money is easier if you have a planfollow these steps to create your own
Sometimes the hardest part of saving money is getting started. This step-by-step guide on how to save money can help you develop a simple, realistic strategy so you can save for all your short- and long-term goals.
1. Record Your Expenses
The first step to start saving money is to determine how much you spend. Track all your expenses; that means every cup of coffee, household item and cash tip, as well as recurring monthly bills. Record your expenses however it's easiest for you, with paper and pencil, a simple spreadsheet or a free online expense tracker or app. Once you have the information, organize the numbers by categories, such as gas, grocery shopping and mortgage, and get the total for each. Use your bank and credit card statements to make sure you've included everything.
Once you know how much you spend in a month, you can begin to create a budget. Your budget should reflect what your expenses are compared to your income so you can plan your spending and limit overspending. Be sure to take into consideration expenses that occur regularly, but not every month, such as car maintenance. Include a savings category in your budget and try to save an amount that you are comfortable with from the beginning. Plan to increase your savings over time until it represents 15 to 20 percent of your income.
3. Find Ways To Cut Your Expenses
If you can't save as much as you'd like, it may be time to cut back. Identify non-essential categories, such as entertainment and dining out, where you can spend less. Also, look for ways to save on your monthly fixed expenses, such as your car insurance or cell phone plan. Here are other ideas for cutting back on everyday expenses.
Search for free activities
Use resources, such as community event listings, to find free or low-cost entertainment events.
Review your recurring charges
Compare the cost of eating out with the cost of cooking at home.
Wait before you buy
When you are tempted to make a non-essential purchase, wait a few days. You may realize that the item is something you want but don't need, and you could set up a savings plan to buy it.
4. Set Savings Goals
One of the best ways to save money is to set a goal. Start by thinking about what you might want to save for, both in the short term (one to three years) and in the long term (four years or more). Then decide how much money you will need and how long it may take you to save it.
Common short-term goals: an emergency fund (three to nine months of living expenses), a vacation, or a down payment for a car
Common long-term goals: down payment for a home or remodeling project, your child's education or for your retirement
Set a small, achievable, short-term goal for something that's fun and not part of your monthly budget, such as a smartphone new or holiday gifts. Achieving smaller goals, and enjoying the pleasant reward you've saved for, can give you a psychological boost that makes the rewarding feeling of saving more immediate and strengthens the habit.
5. Establish Your Financial Priorities
After your expenses and income, your goals are likely to have the biggest impact on how you allocate your savings. For example, if you know you'll soon need to replace your car, you may want to start saving money now to do so. Be sure to keep long-term goals in mind; it's important that planning for retirement doesn't take a back seat to short-term needs. Learn more at how to prioritize your savings goals can give you a clear idea of how to allocate your savings.
6. Choose The Right Tools To Save Money
There are many savings and investment accounts suitable for both short- and long-term goals, so you don't have to choose just one. Look carefully at all the options and consider minimum balances, fees, interest rates, risks and how long you will need the money so you can choose the combination that will best enable you to save for your goals.
If you will need the money soon or want to access it quickly, consider using FDIC-insured deposit accounts:
- A savings account
- A certificate of deposit (CD), which holds your money at a rate generally higher than that of a savings account for a fixed period of time.
If you are saving for retirement or your child's education, consider:
- Individual Retirement Accounts (IRAs) or FDIC-insured 529 plans, which are tax-efficient savings accounts.
- Securities, such as stocks or mutual funds. These investment products are available through investment accounts with a broker-dealer.
7. Save Automatically
Almost all banks offer automated transfers between your checking and savings accounts. You can choose when, how much and where to transfer money, and even split your direct deposit so that a portion of each paycheck goes directly into your savings account. The advantage: you don't have to think about it, and you're less likely to spend the money. Other simple savings tools include credit card and currency rewards programs, which round up transactions to the next dollar and transfer the difference to a savings or investment account.
8. Watch Your Savings Grow
Review your budget and see your progress each month. This will not only help you stick to your personal savings plan, but also help you quickly identify and correct any problems. Knowing how to save money can even motivate you to find more ways to save and reach your goals faster.
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.