Whether you’re just starting to save money for emergencies or you’re getting ready to set aside funds for a house down payment, taking a close look at your saving habits can help you reach your financial goals.
There are a few important steps and methods you can follow to save money. You should start by understanding your finances, creating a solid budget, cutting down on spending, setting up an emergency fund, and practicing good financial habits. It’s also helpful to know what tools are out there for you to use, such as investing options, budgeting and banking tools, and extra ways to earn money like side jobs.
Here are six steps and strategies to help you save money.
1. Understanding Your Finances
Looking at your income and expenses
To begin saving, it’s important to know exactly how much money you’re making and where it’s going.
“People often struggle to save because they only try after they’ve paid for everything else — their rent, mortgage, car payments, groceries, and so on. By that point, there may be nothing left. I always suggest tracking your spending. That way, you can spot where to cut back and start saving,” says Patrina Dixon, CFEI and founder of It’$ My Money.
Look over your monthly expenses and see if there are certain areas where you can spend less. Also, be sure you’re being paid fairly and are not missing any wages you’re owed.
Setting practical financial goals
Maybe you’re saving for a vacation or planning to buy a new car.
To make your goal more real, Scott Stanley, CFP and founder of Pharos Wealth, recommends figuring out how much your goal will cost and setting a target date. Then look at your budget and figure out how much you can save each month.
If your goal starts to feel out of reach, you can adjust it by giving yourself more time or aiming for something that costs less.
How budgeting helps with saving
Budgeting helps you understand how much money you have to work with each month, and how much should go to necessary bills. Essential expenses like rent, utilities, and groceries are things you need every month.
Nonessential expenses are things like eating out or entertainment. Your budget will help you decide which of these extras you can afford and which ones you might want to reduce or cut out.
2. Effective Budgeting Strategies
Making a monthly budget
There are some well-known ways to build a budget and manage your spending.
One example is the 50/30/20 budget rule. With this plan, 50% of your income goes to needs like housing and utilities, 30% to wants like dining out, and 20% to savings or debt payments. This rule is flexible, but it might not work for everyone, especially in areas with a high cost of living.
Another example is the 70/20/10 rule. This method sets 70% of your income for all expenses, 20% for savings or investments, and 10% for debt payments or donations. Like the 50/30/20 rule, it gives you structure without needing to track every single dollar. If you want to focus more on paying off debt or giving back, this method might suit you better.
After you’ve made your budget, check in regularly to see how you’re doing. If something doesn’t go as planned, you can adjust it. You might also need to change your budget if you get a raise or a bonus.
Finding ways to reduce spending
Once you have a budget plan, you can look for areas where you might be spending too much.
Cutting back on nonessential items doesn’t mean removing all your fun purchases. Dixon suggests doing them less often instead.
For example, if you enjoy buying gourmet coffee daily, you could reduce your visits to once or twice a week and save the difference.
Using budgeting apps and tools
There are many tools and apps that can help you manage your budget. If apps aren’t your thing, a simple notebook can still do the job.
A budgeting app can track your spending automatically and highlight where you’re overspending. Some apps also remind you about bills and help you set savings goals.
If you’re saving for something specific, you might like a savings account that helps you track your progress. Some high-interest savings accounts let you label your savings goals, or you can open a separate savings account just for one purpose.
3. Reducing Everyday Expenses
Cutting grocery costs
To save on groceries, Dixon recommends planning your shopping trips so you only need to go once. This helps save both money and time, and it can also help reduce gas costs if stores are far away.
Lowering utility bills
There are several ways to reduce your utility bills. Some changes are simple, while others require spending money upfront.
For example, you can lower your heating in winter or raise the thermostat in summer. You can also reduce usage at night when it’s cooler or warmer depending on the season.
If you’re open to long-term savings, energy-efficient appliances or solar panels could help lower your bills over time.
Saving on transportation
If your area has public transportation, using it might cost less than driving — especially when you factor in gas, parking, and car maintenance.
If your city is bike-friendly, biking could also be a cheaper option.
Not everyone can give up a car, but if it’s possible, avoiding car loans, fuel costs, and repairs can save a lot in the long run. It also helps cut down on the use of costly ride-share services.
4. Building Smart Financial Habits
Why an emergency fund is important
An emergency fund gives you a financial safety net. If something unexpected happens — like losing your job or a medical emergency — this fund can help you avoid debt or dipping into money saved for other things.
Aim to save enough to cover three to six months of expenses. If you expect higher costs, like medical bills, you may want to save more.
A high-yield savings account can help your emergency fund grow faster by earning more interest.
Paying off high-interest debt
Debt with high interest, like credit cards, can quickly grow if not paid down. If you’re only paying the interest each month, you won’t reduce the main balance you owe.
Make sure your budget includes money for debt payments, and try to pay down debts as quickly as possible to avoid extra interest.
You can use the avalanche method — paying off the debt with the highest interest first — to save money in the long run. Another option is the snowball method, where you pay off your smallest debts first. Pick the method that fits your situation best.
Investing for long-term goals
It’s a good idea to start saving for retirement early. One option is to regularly put money into a Roth IRA. Over time, this account can grow with interest and earnings.
Investing can also help you save for other big goals, like buying a house. Just remember that investing always carries some risk, and there’s a chance you could lose money too.
5. Earning Extra Income
Trying side jobs
Adding a side hustle can help bring in more money. You can try freelancing, gig jobs, or using apps that let you earn money for small tasks.
Apps may not pay much, but they usually don’t require a lot of effort.
Freelancing can be more profitable but might require time and some upfront work. You can start with sites like Fiverr or Upwork. Gig economy apps like Uber or TaskRabbit are also popular but may need equipment like a car or tools.
Selling things you no longer need
You can sell unused items online using platforms like Facebook Marketplace, Depop, or Poshmark. Just be aware that some of these services charge fees.
If online selling isn’t for you, consider holding a garage sale to clear out clutter and make some extra cash.
6. Using Helpful Savings Tools
Opening a high-yield savings account
These accounts work like regular savings accounts but pay more interest. This means your money can grow faster without taking risks.
Pick an account based on how often you’ll need access to your money. Some savings accounts limit how often you can take out money, which may help you avoid spending it too soon.
If you need quick access to your money, a checking account might be better — though most checking accounts don’t earn interest.
Dixon explains, “Most of your direct deposits should go here, so you can cover rent, bills, and car payments.”
Using certificates of deposit (CDs)
CDs are bank accounts that earn interest over a set time. You usually can’t take out the money until the time period ends.
Unlike regular savings accounts with interest rates that can change, CDs have fixed interest rates for their full term. They’re good for long-term savings goals if you know how long you can leave the money untouched.
But keep in mind that if interest rates go up after you open your CD, you might be stuck with a lower rate than newer savings accounts offer.
Setting up automatic savings
Automating your savings helps you stay consistent. Stanley suggests setting up automatic transfers from your checking account to your high-yield savings account right after each paycheck. This way, the money is saved before you have a chance to spend it.
By reviewing your income and spending, creating a plan, and using tools that work for you, you can begin saving and making progress toward your financial goals. Even if you’re starting small, following these steps can help you build a better future.
