Saving money is one of those tasks that's so much easier said than done. There's more to it than
spending less money
(although that part alone can be challenging). How much money will you
save, where will you put it, and how can you make sure it stays there?
Here's how to set realistic goals, keep your spending in check, and get
the most for your money.
Steps
1
Kill your debt first.
Simply calculating how much you spend each month on your debts will
illustrate that eliminating debt is the fastest way to free up money.
Once the money is freed from debt payment, it can easily be re-purposed
to savings. Plus, the sooner you pay off debt, the less interest you'll
pay, and that money can be saved instead.
- If you choose to start saving before you completely pay off your debt, however, look into consolidating your debts so that you're not paying as much interest.
- The only money-saving that should take precedence over getting out of debt is to create an emergency fund
(setting aside enough money so that if you lose your income, you can
survive for 3-6 months). If you don't already have an emergency fund,
you should start contributing to one immediately.
2
Set savings goals. For short-term goals, this is easy. If you want to buy a video game, find out how much it costs; if you want to buy a house,
determine how much of a down payment you’ll need. For long-term goals,
such as retirement, you’ll need to do a lot more planning (figuring out
how much money you’ll need to live comfortably for 20 or 30 years after
you stop working), and you’ll also need to figure out how investments will help you achieve your goals.
3
Establish a time-frame. For example: "I want to be able to buy a house
two years from today." Set a particular date for accomplishing
shorter-term goals, and make sure the goal is attainable within that
time period. If it’s not attainable, you’ll just get discouraged.
4
Figure out how much you’ll have to save per week, per month, or per paycheck to attain each of your savings goals.
Take each thing you want to save for and figure out how much you need
to start saving now. For most savings goals, it’s best to save the same
amount each period. For example, if you want to put a $20,000 down
payment on a home in 36 months (three years), you’ll need to save about
$550 per month every month. But if your paychecks amount to $1000, it
might not be a realistic goal, so adjust your time-frame until you come
up with an approachable amount.
5
Keep a record of your expenses.
What you save falls between two activities and their difference: how
much you make and how much you spend. Since you have more control over
how much you spend, it's wise to take a critical look at your expenses.
Write down everything you spend your money on for a couple weeks or a
month. Be as detailed as possible, and try not to leave out small
purchases. Assign each purchase or expenditure a category such as: Rent,
Car insurance, Car payments, Phone Bill, Cable Bill, Utilities, Gas,
Food, Entertainment, etc.
- Keep a small notebook with you at all times. Get in the habit of recording every expense and saving the receipts.
- Sit down once a week with your small notebook and receipts. Record your expenses in a larger notebook or a spreadsheet program.
- There are also many apps you can download to your phone that will help you keep track of your expenses.
6
Trim your expenses.
Take a good, hard look at your spending records after a month or two
have passed. You’ll probably be surprised when you look back at your
record of expenses: $30 on ice cream, $10 on parking tickets? You’ll
likely see some obvious cuts you can make. Depending on how much you
need to save, however, you may need to make some difficult decisions.
Think about your priorities, and make cuts you can live with. Calculate
how much those cuts will save you per year, and you'll be much more
motivated to pinch pennies.
- Can you move to a less expensive apartment or house? Can you refinance your mortgage?
- Can you save money on gas, or give up a car altogether? If your family has multiple cars, can you bring it down to one?
- Can you get a better price on insurance? Call around and make sure
you are getting the best price you can. Consider taking a higher
deductible, too.
- Shop the discount racks at clothing stores. Items on clearance are marked down considerably and could save you 50% of the price.
- Can you drop a land line and either only use your cell phone or save
money by calling over the internet for free with services such as
Skype?
- Can you live without cable or satellite TV?
- Can you cut down on your utility bills?
- Can you restrict eating out? Buy food in bulk? Start using coupons? Cook more at home? You might be able to save a lot of money when grocery shopping.
7
Reassess your savings goals.
Subtract your expenses (the ones you can't live without) from your
take-home income (i.e. after taxes have been taken out). What is the
difference? And does it match up with your savings goals? Let's say
you've decided you can definitely get by on $150 per month, and your
paychecks amount to $230 per month. That leaves you with $80 to save. If
there’s absolutely no way you can fit all your savings goals into your
budget, take a look at what you’re saving for and cut the less important
things or adjust the time-frame. Maybe you need to put off buying a new
car for another year, or maybe you don’t really need a big-screen TV
that badly.
8
Make a budget.
Once you’ve managed to balance your earnings with your savings goals
and spending, write down a budget so you’ll know each month or each
paycheck how much you can spend on any given thing or category of
things. This is especially important for expenses which tend to
fluctuate, or which you know you're going to have a particularly hard
time restricting. (E.g. "I will only spend $30 a month on
movies/chocolate/coffee/etc.")
9
Stop using credit cards.
Pay for everything with cash or money orders. Don't even use checks.
It's easier to overspend when you're pulling from a bank or credit
account because you don't know exactly how much is in there. If you have
cash, you can see your supply running low. You can even bundle up the
predetermined amount of cash allocated for each expense with a label or
keep separate jars for each expense (e.g. a bundle/jar for coffee,
another for gas, another for miscellaneous). As you pull money from a
jar for that particular expense, you'll see how much remains and you'll
also be reminded of your limit.
- If you need to have credit cards but you don't want the temptation
of having them available to use day-to-day, restrict that section of
your wallet with a note or picture reminding you of your savings goals.
- Credit cards are not inherently evil; it's all about your self
control. If you use them responsibly (i.e. completely pay them off every
month), you can benefit from them. But the reason most credit card
companies make money,
however, is because people end up spending money that they don't have.
Unless you are one of the people who can religiously pay off the balance
in full every month, you're better off foregoing the promotions that
credit card companies use to lure you in (cash back, introductory APR,
airline miles, and so on).
10
Open an interest-bearing savings account.
It’s a lot easier to keep track of your savings if you have them
separate from your spending money. You can also usually get better
interest on savings accounts than on checking accounts (if you get
interest on your checking account at all). Consider higher-interest
options such as CDs or money-market accounts for longer savings goals.
11
Pay yourself first.
Savings should be your priority, so don’t just say that you’ll save
whatever is left over at the end of the month. Deposit savings into an
account (or your piggy-bank) as soon as you get paid. An easy,
effective way to start saving is to simply deposit 10% of every check in
a savings account. If you get a check or sum of cash, say 710.68, move
the decimal point one place to the left and deposit that amount: 71.07.
This works well and requires little thought; over several years, you've a
tidy sum in savings.
- You can set up an automatic transfer from your checking account to your savings account.
- Many employers allow you to deduct savings from your paycheck. The
money is directly deposited in your savings account so you never even
see it on your paycheck.
- You can also have investments for retirement taken directly out of
your pay, and the taxes may be deferred with this option. Your employer
may offer a 401k matching program for retirement as well making it even
more worthwhile to save.
12
Don't get discouraged and don't give up.
You may not think you can become wealthy but to become a millionaire is
possible if you set up a aggressive savings plan and stick to it. You
may be surprised how much money you can put away for something far more
enjoyable than what you could buy with short term savings. Good things
often take time and the longer you save the more interest you will be
making on your savings as well!
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