Saving is easier when you have a plan. Sometimes the hardest thing about saving money is just getting started. This step-by-step guide can help you develop a simple and realistic strategy to save for all your short- and long-term goals.
Record your expenses
The first step to start saving money is figuring out how much you spend. Keep track of all your expenses—that means every coffee, household item, and cash tip as well as regular monthly bills. Record your expenses however is easiest for you—a pencil and paper, a simple spreadsheet or a free online spending tracker or app. Once you have your data, organize the numbers by categories, such as gas, groceries and mortgage, and total each amount. Use your credit card and bank statements to make sure you’ve included everything.
Include saving in your budget
Now that you know what you spend in a month, you can begin to create a budget. Your budget should show what your expenses are relative to your income, so that you can plan your spending and limit overspending. Be sure to factor in expenses that occur regularly but not every month, such as car maintenance. Include a savings category in your budget and aim to save an amount that initially feels comfortable to you. Plan on eventually increasing your savings by up to 15 to 20 percent of your income.
Find ways to cut spending
If you can’t save as much as you’d like, it might be time to cut back on expenses. Identify nonessentials, such as entertainment and dining out, that you can spend less on. Look for ways to save on your fixed monthly expenses, such as your car insurance or cell phone plan, as well. Other ideas for trimming everyday expenses include:
Review recurring charges
Cancel subscriptions and memberships you don’t use—especially if they renew automatically.
Examine the cost of eating out vs. cooking at home
Plan to eat most of your meals at home, and research local restaurant deals for nights that you want to treat yourself.
Wait before you buy
When tempted by a nonessential purchase, wait a few days. You may realize the item was something you wanted rather than needed—and you can develop a plan to save for it.
Set savings goals
One of the best ways to save money is to set a goal. Start by thinking about what you might want to save for—both in the short term (one to three years) and the long term (four or more years). Then estimate how much money you’ll need and how long it might take you to save it.
Common short-term goals: Emergency fund (three to nine months of living expenses), vacation or down payment for a car
Common long-term goals: Down payment on a home or a remodeling project, your child’s education or retirement
Determine your financial priorities
After your expenses and income, your goals are likely to have the biggest impact on how you allocate your savings. For example, if you know you’re going to need to replace your car in the near future, you could start putting away money for one now. But be sure to remember long-term goals—it’s important that planning for retirement doesn’t take a back seat to shorter-term needs. Learning how to prioritize your savings goals can give you a clear idea of how to allocate your savings.
Pick the right tools
There are many savings and investment accounts suitable for short- and long-term goals. And you don’t have to pick just one. Look carefully at all the options and consider balance minimums, fees, interest rates, risk and how soon you’ll need the money so you can choose the mix that will help you best save for your goals.
Short-term goals
If you’ll need the money soon or need to be able to access it quickly, consider using a savings account or lock in your money for a fixed period of time at a rate that is typically higher than that of a savings account
Long-term goals
If you’re saving for retirement or your child’s education, consider insurance savings plan, securities, etc.
Make saving automatic
You can choose when, how much and where to transfer money or even split your direct deposit so that a portion of every paycheck goes directly into your savings account. The advantage: You don’t have to think about it, and you’re less likely to spend the money instead.
Watch your savings grow
Review your budget and check your progress every month. That will help you not only stick to your personal savings plan but also identify and fix problems quickly. Understanding how to save money may even inspire you to find more ways to save and hit your goals faster. Tips by bankofamerica.com
