Everyone wants to save money, but few people know how to do it. It isn’t enough to set up a budget and stick to it; you need to know how to use your money wisely to save the most possible over time. Check out these eight simple ways to save money. And you’ll be on your way to saving more than ever before.
1. Record your expenses
The first step to saving money is figuring out how much you spend. Keep track of all your expenses that means every coffee, household item, cash tip, and regular monthly bills. Record your costs, however, is easiest for you—a pencil and paper, a simple spreadsheet. Or a free online spending tracker or app. Once you have your data, organize the numbers by categories, such as gas, groceries, mortgage, and total each amount. Use your credit card and bank statements to make sure you’ve included everything.
2. Include saving in your budget
Now that you know what you spend in a month, you can create a budget. Your budget should show what your expenses are relative to your income to plan your spending and limit overspending. Be sure to factor in costs that occur regularly but not every month, such as car maintenance. Include a savings category in your budget. And aim to save an amount that initially feels comfortable to you plans on eventually increasing your savings by up to 15 to 20 percent of your income. For example, if you earn $50,000 per year, aim to save $7,500 or more each year. If saving doesn’t come naturally to you, consider automating your savings—setting aside funds from each paycheck. Or direct deposit into a separate account—to avoid making decisions about it each time.
3. Find ways to cut spending
If you can’t save money as much as you’d like, it might be time to cut back on expenses. Identify nonessentials, such as entertainment and dining out, that you can spend less on. Look for ways to save on your fixed monthly payments, such as your car insurance or cell phone plan. Other ideas for trimming everyday expenses include: Set a goal for how much you’d like to save each month. For example, $100 can add up to $1,200 per year or enough for a weekend getaway or a nice family vacation. Build your budget around meeting your savings goals. And look for areas where you can cut back on expenses that don’t offer much in return.
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 the long term (four or more years). Then estimate how much money you’ll need and how long it might take you to save it. Now that you have a goal in mind, it’s time to set up a savings plan. Figure out how much you can afford to put toward your goal each month. And then establish an automatic transfer from your checking account into your savings account so that it happens without effort.
5. Determine your financial priorities
After your expenses and income, your goals are likely to have the biggest impact on allocating your savings. For example, if you know you’ll need to replace your car shortly. You could start putting away money for one now. But be sure to remember long-term goals—it’s important that planning for retirement doesn’t take a back seat to shorter-term needs. Learning how to prioritize your savings goals can give you a clear idea of allocating your savings.
6. Pick the right tools
Many savings and investment accounts are suitable for short- and long-term goals. And you don’t have to pick just one. Look carefully at all the options and consider balance minimums, fees, interest rates, risk. And how soon you’ll need the money to choose the mix that will help you best save money for your goals. If you’re starting early with short-term goals, a savings account might be a good place to start. This is an easy way to put away extra cash and earn interest on it. As you get closer to your goal date, consider investing in stocks, bonds. Or mutual funds — securities that are more likely to grow over time. You can also choose a combination of all three. Remember not to invest too much in things that could lose value if you need the money soon, like stocks or real estate.
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 that a portion of every paycheck goes directly into your savings account. The best way to ensure you’re saving as much as possible is by having your bank automatically transfer. A set amount from your checking account into a savings account every month. You can automate how much you transfer. But don’t be tempted to move more than 10 percent of your income—otherwise. It could hurt your ability to make ends meet at other times of the year.
8. Watch your savings grow
Review your budget and check your progress every month. That will help you stick to your personal savings plan and identify and fix problems quickly. Understanding how to save money may inspire you to find more ways to save and hit your goals faster.