The first step to saving money is to figure out how much you spend. Keep track of all your expenses—that means every coffee, household item and cash tip. 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 begin to organize your recorded expenses into a workable budget. Your budget should outline how your expenses measure up to your income—so you can plan your spending and limit overspending. In addition to your monthly expenses, be sure to factor in expenses that occur regularly but not every month, such as car maintenance.
3. Plan on Saving Money
Now that you’ve made a budget, create a savings category within it. Try to save 10 to 15 percent of your income. If your expenses are so high that you can’t save that much, it might be time to cut back. To do so, identify nonessentials that you can spend less on, such as entertainment and dining out, 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.
4. Choose Something to Save For
One of the best ways to save money is to set a goal. Start by thinking of what you might want to save for—perhaps you’re getting married, planning a vacation or saving for retirement. Then figure out how much money you’ll need and how long it might take you to save it.
Here are some examples of short- and long-term goals:
Short-term (1–3 years)
- Emergency fund (3–9 months of living expenses, just in case)
- Down payment for a car
Long-term (4+ years)
- Down payment on a home or a remodeling project
- Your child’s education
If you’re saving for retirement or your child’s education, consider putting that money into an investment account such as an IRA or 529 plan. While investments come with risks and can lose money, they also create the opportunity for compounded returns if you plan for an event far in advance. See step No. 6 for more details.
5. Decide on Your Priorities
After your expenses and income, your goals are likely to have the biggest impact on how you allocate your savings. Be sure to remember long-term goals—it’s important that planning for retirement doesn’t take a back seat to shorter-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 you’re going to need to replace your car in the near future, you could start putting money away for one now.
6. Pick The Right Tools
If you’re saving for short-term goals, consider using these FDIC-insured deposit accounts:
Certificate of deposit (CD), which locks in 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-dealer. Remember that securities are not insured by the FDIC, 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 pick just one account. Look carefully at all of your options and consider things like balance minimums, fees and interest rates so you can choose the mix that will help you best save for your goals.
7. Make Saving Automatic
Almost all banks offer automated 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 a portion of every paycheck goes directly into 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 it generally reduces the temptation to spend the money instead.
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 also helps you identify and fix problems quickly. These simple ways to save may even inspire you to save more money every day and hit your goals faster.