Everyone wants to save more money. It seems “easier said than done”, but it doesn’t have to be. There are countless money saving tips and tricks that you can follow to help you save more here and there – the little bits add up!
But you want to build wealth long term. That’s more than just a simple tip here and there. It’s about establishing healthy money management habits and discovering the best financial tools and resources.
We’re going to walk you through 7 steps that you can start taking today to save money fast and build wealth over time. There are a few common themes to keep in mind that all contribute to your success in saving money:
- Awareness – Know your expenses and current habits so you can stay organized and adjust to maximize your saving potential.
- Time – Start now. Patience is a key factor in many saving techniques, so learning how to save money as a teen will give you a great head start.
- Dedication – Make a great savings plan and stick to it. If you stray from it from time to time, that’s okay! Notice that, get back up, and adapt. Your future self will thank you.
1. Outline Your Expenses
Keep focused on liabilities like bills and subscriptions that you are obligated to pay each month.
Do you know all of your bills and recurring expenses, how much they are, and when they’re due?
If your answer is no, that’s alright! There are a surprising number of people who don’t really know what they spend every month. That’s how some subscription-based companies thrive – people forgetting to cancel automatic resubscribing.
If your answer is yes, that’s great! You have a head start. Now it’s time to put it all down on paper and work it into your savings plan.
Start a spreadsheet or use good old pen and paper and outline all of your expenses. Keep this limited to your recurring expenses like phone bills, rent, utilities, or subscriptions. You should end up with something like this.
|Expense||Due Date||Amount Due|
Keep this handy so you can continually revisit it and update for any changes, paid-off debts, or additions. This will allow you to regularly recalibrate your expenses and increase your savings.
2. Analyze Your Spending Habits
These can be a mix of expenses, necessary or not. Keep focused on where your money is going that isn’t on a set schedule like the items in part 1.
Up next are the things that aren’t monthly bills or subscriptions that you spend regularly. This will include things like gas, groceries, going out to eat, shopping, etc. Break down your spending by month and put them into categories such as the ones just mentioned. The more detailed you can be in your spending categories, the more effectively you’ll know just where your money is going.
There are many banks that already categorize your spending for you, which can give you a great head start. You can likely simply export a spreadsheet of your transactions from your bank or credit union’s website.
Remember to try including all of your financial sources. For instance, multiple credit or debit cards from different banks and cash transactions. If you spend a lot in cash, try taking a month to track your purchases to get a better idea of your cash outflow.
3. Create a Budget
Take a step back and look at your spending habits and expenses. Try to separate the needs from the wants.
Now you know where your money is going. Now it’s time to take a look at where it should be going and compare. When making a budget it’s important to find the balance between frugal and comfortable. Don’t punish yourself now in hopes to reward your future self later!
The end goal of your budget should be to have a good idea of:
- How much income you have
- How much of that goes to needed expenses
- How much can go to an allowance for non-essential expenses
- How much you can save
Outline all of your income – from your primary job and any other secondary or passive income sources that you have. If you get paid a salary with direct deposits this is a bit more straightforward.
If you work a job with less consistent pay, such as a server or bartender, you’ll want to take the average of your earnings or stay on the low side for good measure. You can continue to build on your budget over time and better accommodate for changes in your pay and seasonal trends.
Then take your necessary expenses from parts 1 and 2. This will be deducted from your income each month as long as the expenses are not paid in full or cancelled. What’s left is your money to use for spending, saving, and investing.
Analyze your spending habits to give yourself a weekly or bi-weekly allowance for spending. We recommend to be generous at first and narrow this down over time. Being overly strict on yourself too quickly can lead to frustration and falling off track.
Now take a look at what’s left after necessary expenses and your spending allowance for saving and investing. We recommend doing a split of both. It’s okay if it’s not as much as you had hoped. There are many budgeting techniques that can be used to be more efficient as you learn and grow in your financial literacy.
4. Establish Priorities & Define Goals
This is where you can be more strategic in your saving endeavors and work towards what truly matters to you.
You’ll be more effective and motivated in saving money if you are working towards something. Having a mix of short- and long-term financial goals will allow you to better prepare for future expenses and get the things you want.
There are a few essential buckets that we recommend including:
- Emergency Fund
- Retirement Fund
- Personal Savings
Saving towards a goal can be especially motivating because it’s typically towards a larger purchase such as a car, down payment on a home, or something fun.
To set an effective savings goal, you’ll need to know:
- The amount you need
- The amount you already have allocated to this goal (if applicable)
- The target date
For example, let’s say you are in the market to purchase a home and need a down payment for your mortgage. Your goal is to have a 20% down payment to avoid paying PMI and want to buy a house in 1 year.
The houses you’ve been looking at are around $130,000 and you already have $10,000 saved towards it.
Amount needed: $130,000 x 20% = $26,000
Currently Allocated: $10,000
Additional Savings Required: $26,000 – $10,000 = $16,000
Monthly Savings Goal: $20,000 / 12 = $1,333.33
If you’re able to save $1,334 each month, you’ll reach your goal in a year! If not, then you can consider reducing your goal or extending your timeline to make it more attainable.
5. Find the Saving Methods that Work for You
With your goals and expected savings amounts in mind, it’s important to find the best tools to maximize your saving potential.
There are tons of different types of savings accounts and programs, each with their own pros and cons. Using the right tools is crucial for saving money fast and will add up significantly as time goes on.
Consider these things, among others, when determining what types of accounts best accommodate your saving goals.
Standard Savings Accounts
There are many different types of savings accounts that you can compare to find the best APY (annual percentage yield) with terms and requirements that work for you. For longer-term goals you can also consider things like CDs (Certificate of Deposit) and High-Yield Savings accounts that have stricter requirements, but greater reward.
Personal Investing Accounts
Depending on your interest in getting started with investing, you should also consider some personal investment accounts outside of a 401k, Roth IRA, or other retirement fund. There are many investing services that can cater to your needs based on how granular and hands-on you’d like to be.
Rewards & Special Programs
Don’t discount things like cash back rewards or savings round-ups when selecting a bank or credit union account. These programs are made to promote additional spending, so it’s important to keep that in check.
Employer Match Retirement Savings
Working towards retirement saving goals simultaneously and as early as possible is essential. If you work for a company that offers a 401k program with company matching, take advantage of that immediately. We recommend contributing at least the maximum amount that your employer will match.
6. Automate Your Savings
Automatic components to your saving methods will ensure you stick to it, but beware of risks that come with over-committing beyond your means.
Finding ways to automate saving money through direct transfers and deposits can help reduce the temptation to spend, eliminate the task of remembering to transfer funds, and expedite establishing saving habits.
It’s critical you think this part through, however, because a scheduled transfer can’t account for changes in your income, large one-time expenses, or other things that may force you to adjust from time to time.
Having money from your paycheck direct deposit can be a huge advantage in saving because you can automatically allocate money to various accounts without you ever seeing it. Out of sight, out of mind and the temptation to spend it is significantly reduced!
If direct deposit isn’t available to you, or in addition to it, most banks and even investing apps nowadays offer scheduled recurring transfers. Aligning your pay schedule with transfers to various saving or investing accounts will ensure that a specified portion of your money gets saved every time.
Be sure to read over the limitations of your account for things like monthly transfer allowances to avoid fees and fines.
7. Adapt & Diversify
As your incoming and outgoing cash changes over time, it’s important to periodically review where your money is going and make any necessary adjustments.
The way that you save money will change over time, or at least it should, as you progress through your career and encounter financial changes like a promotion, new job, or a built up amount of cash that can unlock new saving methods for you.
You’ll need to adapt your savings habits as you go for things like pay raises. In fact, every time you get a pay raise, you should take a minute to recalibrate your savings efforts to make sure that new potential isn’t lost.
First, find out what that pay raise equals per month so you have a better idea of what you truly have to work with. Don’t forget to account for taxes as well. You can get more definite amounts after you have received a few checks, but to estimate, take 75% of the monthly amount. This should equate to roughly what you’d see after all taxes and deductions.
Then, based on your established goals, divvy up the newly earned portion of your pay to various accounts and update any direct deposits, retirement fund contributions, and bank transfers accordingly. Remember to consider keeping a little for yourself too, you’ve earned it (literally).
Another aspect of your savings that you’ll need to keep tabs on over time is diversity. As you build wealth, you may gain access to savings methods that you didn’t have before. Being able to contribute or invest a larger sum of money at once can lead to opportunities such as:
- High-yield savings accounts with large minimum deposits
- Large CDs (Certificate of Deposit)
- Investing in large growing companies
- Higher returns on interest payments and dividends
Spending Less = Saving More
Now you are armed with the knowledge to establish and maintain healthy savings habits long-term. Here is where you can start to sprinkle in the little tips that can add up over time.
When you find tips on “how to save” it’s usually more about spending less, or “cost savings”, than it is actually saving money. Knowing what to do with these cost savings is the key.
- Plan ahead for large purchases and known expenses
- Get into couponing
- Be on the lookout for ways to reduce bills through a different provider
- Limit going out to eat
- Make your own gifts instead of buying them
The list goes on and on.
The last bit of advice we’ll give goes without saying at this point, but it’s an important thing to keep in mind. Be sure to use credit cards wisely and don’t assume debt you’re not certain you can repay.
Even if you become a saving master, it can all go away very quickly if you get wrapped up in a bad debt and deal with penalties, fees, and excessive interest charges. Not to mention this will damage your credit score.
Try to limit your credit card purchases within a reasonable range to pay back in full every month. And give that goal-oriented saving we talked about a try before diving head first into a new loan.