At its core, saving money—or spending less than we earn—is a simple concept. But that doesn’t change the fact that, for many of us, it can feel pretty hard to do.
According to a March 2018 Bankrate survey, 20 percent of Americans don’t have any savings at all. And of those who do, most are socking away between 1 percent and 10 percent of their income. That’s a great start—especially when money’s tight—but that’s probably not enough to reach their big financial goals in the long run.
Still, finding effective ways to save is key to being able to afford our needs and wants—and ensuring we don’t have to rely on high-interest credit card debt to help fund any of it.
Ready to get started? Here’s our definitive guide to getting your savings on track, starting with setting the right goals.
Step #1: Start with a mini emergency fund.
Funding an emergency fund—a not-so-cleverly named savings account with money you’ve stashed away for an emergency—should be your No. 1 goal. It’s not the most exciting task, but having this money on hand can help you breathe easier, knowing you can handle unexpected expenses or a temporary loss of income without reaching for a credit card.
Aim to save $500, then $1,000, and eventually work your way up to saving three to six months’ worth of basic living expenses. And keep these tips in mind to get there as fast and possible:
Open a savings account just for your emergency fund. Some experts recommend choosing a bank that’s separate from your regular checking account, so you won’t be tempted to tap it for non-emergencies. Just make sure you can access it easily enough when you need it.
Look for a savings account with a high interest rate. Online banks tend to offer better yields than brick-and-mortar banks, but shop around.
Take willpower out of the equation by setting up automatic transfers from your checking account to savings. This helps ensure you won’t accidentally spend the money before you save it.
Commit to saving any unexpected income—your work bonus, a birthday check from you mom, the $10 you found in a stadium bathroom. No amount is too small.
Don’t feel guilty about using the funds for real emergencies, but aim to replace them as soon as you can.
Step #2: Set other short- and long-term goals.
Next, decide what else you’re saving for—both for the next 12 months and over the long term.
Here’s your step-by-step guide to saving for short-term goals.
Write down your goal—say, a vacation, home upgrade or new furniture—its cost and a deadline.
Calculate how much you’ll need to save each week or month and set up an automatic transfer to savings. For example, if you want to book a $500 hotel stay in three months, you’ll need to set aside $42 for the next 12 weeks, or $167 per month.
Give yourself some grace. If unexpected expenses arise and you need to extend your deadline, that’s okay. Commit to getting back on track when you can.
Saving for retirement, a kid’s college education or to purchase a home are examples of long-term savings goals. It can be easy to keep goals like these on the back burner in favor of other, more immediate goals, but since they often require years of diligent saving, it’s smart to start as soon as you can.
Plus, for goals with years-long timelines, you’ll want to do more than just save. Investing the money you’ve set aside gives you a greater opportunity to earn returns. Here’s how to invest for longer-term goals.
Write down your long-term goals and approximately how much money you’ll need.
Pinpoint a deadline. For example, an appropriate timeline for a kid’s college tuition is his high school graduation date. A deadline of saving for a home may be a bit more flexible, but having a date in mind can help make sure you don’t under-save.
Choose the right investment vehicle for each goal. For example:
Retirement: If you have a work-sponsored retirement plan, like a 401(k) or 403(b), set up contributions there first. They offer tax advantages and possibly free money in the form of an employer match. You can also invest for retirement through Individual Retirement Account, available to just about anyone with an income (or even a spouse with an income).
College savings: Look into 529 plans, which allow tax-free withdrawals for qualified expenses, like tuition, room and board and books.
Other goals: Open a brokerage account, which offers a wide range of investments you can select for yourself.
Calculate how much you’ll need to save on a monthly basis, assuming a conservative rate of return (like 6 or 7 percent for stocks). Then set up automatic contributions.
Commit to investing that amount until you reach your long-term goal—no matter what the stock market does in the short term.
Step #3: Learn how to budget to consistently save more money.
To make saving money a lasting habit, make it part of your regular budget. If you don’t have a budget yet, it’s time.
While the “b” word may seem scary, it’s really just a plan for spending your money. It’s like making a grocery list before you go to the store; if you don’t, you’ll probably forget something you need or overspend on stuff you don’t. A spending plan helps ensure you’ll have the money to meet your obligations for the month—including savings.
The 50/20/30 rule, which breaks up your monthly income into three categories, is an easy place to start:
50 percent of income is spent on your fixed expenses. This includes housing, utility bills, student loan payments and other regular expenses. If the total equals more than half your monthly take-home pay, try finding ways to lower them—for instance, renegotiating your cable or phone bill.
20 percent of income saved or invested for your financial goals. This is your category for saving and investing for both short- and long-term goals. If 20 percent isn’t enough, aim to spend less on the other categories to save more.
30 percent of income used for flexible spending. The remaining third of your monthly income goes toward any fluctuating expenses, including the fun stuff—eating out, entertainment, gifts, clothing and travel.
Step #4: Incorporate a few savings hacks into your life.
Now you know how and why to save. But if you’re still struggling to come up with enough money to hit your goals, you’ll need a few more go-to moves. Try these:
Set your thermostat higher in the summer and lower in the winter to save on energy bills. Swapping out light bulbs, patching leaks and converting to a low-flush toilet can go a long way, too.
Look for ways to lower your housing costs—from negotiating your rent to finding a roommate.
Cancel subscriptions you don’t use enough to justify the cost, including magazines, gym memberships and Netflix.
Repair clothing, bicycles, toys and other items rather than purchasing new.
Shop for secondhand items you need on Craigslist or eBay before buying at full price.
Borrow items that you’ll only use once from friends or neighbors.
Clean out your closet and sell the items you no longer want or need.
Use coupons and loyalty shopper cards to get discounts at stores you frequent.
Join a carpool, ride a bike or use public transportation to save on gas.
Buy in bulk to get discounts on items you use regularly, from bottled water to diapers and contact lenses.
If you get creative, there are tons of other ways to put more money in your pocket. And if you apply all that extra toward your goals, you’ll be well on your way to mastering the art of saving.
Related: 101 Ways to Save More Money Now