Money Saving 301
January 18, 2024

How to Save Money – The Beginner's Guide

Start by Making Goals

Money saving should start with goals. Thinking about where you want to go helps you answer questions like, “how much money should I have saved,” and determine the best way to save money for your situation. Also, specific goals can help you be a more successful saver.

First, think about what you want to save for; that will help define your short-term and long-term financial goals. Short-term goals usually cover the next year to three years; long-term goals are those four years or more away. If you need ideas, see 4 Financial Resolutions for Your Future.

Once you’ve identified what you want to save for, figure out how much you want to save for each goal. Also, estimate how long you think it could take you to save that amount.

Experts recommend you include at least one small achievable, short-term goal. Make it something fun you wouldn’t usually pay for out of your regular monthly budget. Seeing success can help you feel good and boost your motivation to stick with the habit.

Once your goals are defined, prioritize them. Do you know you’re going to need money in the short-term, like for a deposit on a new apartment? Factor that in. Just don’t forget to think about your long-term goals to keep important things like retirement in focus. While retirement is a long-term goal, you still want to act on it now. Don’t put it off entirely, because the earlier you invest the more time your money has to grow.

After your goals are defined and prioritized, decide how much of your monthly savings to put toward each goal.

Create a Budget

Next, make sure you understand how to budget so you can save money. Track all income and every single expense, either on paper, in a spreadsheet, or using an app. Divide your expenses into categories like gas, groceries, mortgage, dining out, and entertainment.

Using a budgeting app can help you automatically assign categories to expenses and total your spending for each. This will allow you to see trends in your spending, including what percentage of your income goes to each category. Apps may also provide budget tips. Using this information, you can set a budget with spending targets for each category. Every app does this a little differently, so look around and find what works best for you.

If you can’t save as much as you’d like, look at your spending categories and see if there are things you can spend less on. One helpful budgeting rule to try is the 50/30/20 budget rule. You may be surprised how much you spend on non-essentials, like dining out or subscription services, and decide to cut back there so you can save more. You might also be able to shop around and reduce costs for your fixed expenses, like cell phone service or car insurance.

Remember, start saving with any amount you can afford. The longer your money has to grow, the better, an important concept called the time value of money. As you get used to budgeting you can always increase your savings.

Automate Your Savings

Now that you’ve identified how much you can save, how do you make it happen?

The most dependable way to ensure you put the money away is to automate your savings. Many people say when they never see the money go out of their account, they don’t miss it.

Virtually any bank will now allow you to automate transfers to savings. Setup varies by bank, but you’ll typically choose an amount and a frequency, such as weekly or monthly, for the transfer. If you find yourself with extra money for savings, you can always do a one-time transfer into the savings account.

Are you concerned you’ll struggle not to spend the money as it grows? You can open your savings account at a different bank than your checking account. That way the money will be “out of sight, out of mind” – you won’t see the balance each time you do your regular online banking. This helps some people to save it and forget it.

What type of account you choose for savings will depend on your needs. For short-term goals, check out a high-interest savings account, certificate of deposit (CD), or other FDIC-insured account to keep your money safe while it grows. For your long-term savings goals, consider an FDIC-insured individual retirement account (IRA), a 529 plan for education, stocks, or mutual funds.

Comparing options will allow you to find the best interest rates and requirements for your needs. You can even set up different accounts for each of your goals if you like; some banks allow you to automate savings into an account until it reaches a goal amount.

However you choose to save, remember these guidelines:

  • Keep some cash in an emergency fund you can access immediately
  • Make sure your short-term savings accounts are FDIC-insured to keep your money safe while it grows
  • Don’t touch your savings

In short, view the money as inaccessible (unless you have an emergency) and leave it alone to grow. To get you started, here are 10 tips to start saving money today.

Monitor Your Accounts

Once your savings account(s) are set up, enjoy watching them grow! If you find you can save more money, you can always update your automated deposit amount. Work to save 3 to 6 months of income in your quick-access emergency fund.

Now that the basics are out of the way, here are some habits that might help you grow your savings account.

Avoid Impulse Buying

To be successful at saving, you’ll need to avoid impulse buying. These tips can help:

  • Shop online for pickup so you don’t have to go into the store. This way you can’t be tempted by snacks or sale items you would see inside.
  • Don’t go into a store without a list.
  • If you don’t have money to spend, don’t tempt yourself by going shopping. Choose other cheap activities to do with friends.
  • Once you’ve made a plan, stick to it. The more money you see in your savings, the more motivating it will be.

Take Advantage of Comparison Shopping

Any time you decide you need an item, or even for your regular grocery shopping, consider:

  • Research items online to choose the one that performs best, has the best user ratings, offers the best value, etc.
  • When you want an item, wait for it to go on sale or shop similar items on clearance. Consider last year’s model, which may be almost identical.
  • Compare weekly sales flyers or online ads for groceries and go where you get the best prices. When you decide what to cook each week, you can base it on what’s on sale. Consider discount grocery chains like Aldi for your basics.

Cook at Home – Eat Out Less

When you analyze your expenses to create your budget, you may be shocked to see how much you spend to dine out. Cooking at home is an easy way to save money. Money-saving recipes are widely available, even from Food Network and chefs like Jamie Oliver.

Cut Out Unnecessary Expenses

As you review your expenses, look for and cut out any unnecessary expenses. Things that aren’t bringing value to your life anymore, like unnecessary subscriptions, are an easy target. If you still get magazines or newspapers but have no time to read them, let them go and put that money in savings. If you have subscriptions to Hulu, Amazon, and Netflix, think about keeping just one. Perhaps you could get by with a smaller cell phone or internet plan, or you don’t need cable.

Once you start looking for ways to save, you may find that simplifying life is a great side benefit.

Negotiate to Lower Bills

Look at your fixed expenses and see if you can save or negotiate lower rates. These opportunities could include insurance costs, utility costs, internet or cell phone service, rent or mortgage, and even car payments. See if there are promotions available that could help you.

Limit Your Credit Card Use

This is key: limit your credit card use and pay the balance in full every month.

What do you do if you try to limit credit card use but still find yourself spending more than you can pay off at the end of the month? Consider switching to a debit card or trying an envelope budgeting system using cash. This eliminates unnecessary fees and interest. Find what works for you to help you stick to your budget.

Also, be sure the credit card you use doesn’t charge an annual fee. If it does, consider switching to a card without these fees. Research what’s involved in choosing the best credit card to start on the right foot.

Read Up on Financial Education

To help you continue learning about savings, grow your financial knowledge by reading or listening. Check out our list of great personal finance podcasts for a place to start. Trusted websites can also be a good resource.

Entertainment on a Budget

As strange as it may sound, entertainment spending should be part of your budget. It’s not reasonable to never go out with friends. Even if you’re saving, you need quality of life.

Rather than cutting out entertainment spending completely, try reducing what you’re spending now. Start looking for low-cost or free entertainment options. Go to a matinee rather than an evening movie, or try a discount theater; you can even wait until the movie is available on streaming services or at the library. Dining out may be cheaper at lunch or happy hour.

Stay Disciplined

To get or stay motivated, focus on the finish line. Make small shorter-term goals to help you see you’re making progress. Think about what your future could look like if you save today, and pursue that dream.

Money Saving FAQs:

What is the 30-day rule?

The 30-day savings rule helps to control impulse buying, and it’s simple: wait 30 days before acting. Think about whether it’s something you want or need. Decide if it’s worth the impact on your goals.

How can I save $1,000 fast?

A side hustle can be a great way to save money quickly – if you’re sure you can stick to saving the money you earn. For other suggestions, check out the article above.

How can I reduce my entertainment spending?

Check out the “Entertainment on a Budget” section above for tips. For more information, see 12 Cheap Things to Do: Having Fun on a Budget.

What is an installment loan?

An installment loan is an account that gives you a lump sum of money that you pay back over time in monthly payments. You agree to the amount of the payments and the number of payments up front in a contract. For more information, see “What is an installment loan?” in our article Installment Loans vs. Revolving Credit: What You Need to Know or go to our website, checkngo.com.

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