Pay yourself first. The easiest way to save money rather than spending it is to make sure that that you never get a chance to spend the money in the first place. Arranging for a portion of each paycheck to be deposited directly into a savings account or a retirement account takes the stress and tedium out of the process of deciding how much money to save and how much to keep for yourself each month — basically, you save automatically and the money you keep each month is yours to spend as you please. Over time, depositing even a small portion of each paycheck into your savings can add up (especially when you take interest into account) so start as soon as you can for maximum benefit.
Avoid accumulating new debt.
- To set up an automatic deposit, talk to the payroll staff at your job (or, if your employer uses one, your third-party payroll service). If you can provide account information for a savings account separate from your basic checking account, you should generally be able to set up a direct deposit scheme with no problems.
- If for some reason you can't set up an automatic deposit for each paycheck (like if you support yourself with freelance work or are paid mostly in cash), decide on a specific cash amount to manually deposit into a savings account each month and stick to this goal.
Some debt is essentially unavoidable. For instance, only the very rich have enough money
to buy a house in one lump sum payment, yet millions of people are able to buy houses by taking out loans and slowly paying them back. However, in general, when you can avoid going into debt, do so. Paying a sum of money
up-front is always cheaper in the long run than paying off an equivalent loan while interest accumulates over time.
Set reasonable savings goals.
- If taking out a loan is unavoidable, try to make as big of a down payment as possible. The more of the cost of the purchase you can cover up front, the quicker you'll pay off your loan and the less you'll spend on interest.
- While everyone's financial situation differs, most banks recommend that your debt payments should be about 10% of your pretax income, while anything under 20% is considered healthy. About 36% is seen as an "upper limit" for reasonable amounts of debt.
It's a lot easier to save if you know you have something to save for
. Set yourself savings goals that are within your reach to motivate yourself to make the tough financial decisions needed to save responsibly. For serious goals like buying a house or retiring, your goals may take years or decades to achieve. In these cases, it's important to monitor your progress on a regular basis. Only by stepping back and taking a look at the big picture can you get a sense for how far you've come and how far you have left to go.
Establish a time-frame for your goals.
- Big goals, like retirement, take a very long time to achieve. In the time needed to reach these goals, financial markets are likely to be different than they are today. You may need to spend some time researching the predicted future state of the market before setting your goal. For instance, if you're in your prime earning years, most financial commentators say that you'll need about 60-85% of your current yearly income to maintain your current lifestyle each year you're retired.
Giving yourself ambitious (but reasonable) time limits for achieving your goals can be a great motivational tool. For example, let's say that you set a goal of being on your way to owning a house two years from today. In this case, you'd need to investigate the average home cost in the area you'd like to live in and start saving for the down payment on your new house (as a general rule, down payments are often required to be no less than 20% of the purchase price of the house).
- So, in our example, if houses in the area you're looking at are about $300,000 apiece, you'll need to come up with at least 300,000 × 20% = $60,000 in two years. Depending on how much you make, this may or may not be feasible.
- Setting time frames is especially important for essential short-term goals. For instance, if your car's transmission needs to be replaced, but you can't afford the new transmission, you'll want to save up the money for the replacement as quickly as possible to ensure you're not left without a way to get to work. An ambitious but reasonable time frame can help you achieve this goal.
Keep a budget.
It's easy to commit to ambitious savings goals, but if you don't have any way to keep track of your expenses, you'll find that it's difficult to achieve them. To keep your financial progress on-track, try budgeting out your income at the beginning of each month. Assigning a set portion of your income to all of your major expenses ahead of time can help ensure that you don't waste money
, especially if you actually divide each paycheck according to your budget as soon as you get it.
Record your expenses.
- For instance, on an income of $3,000 per month, we might budget as follows:
- Housing/utilities: $1,000
- Student loans: $300
- Food: $500
- Internet: $70
- Gasoline: $150
- Savings: $500
- Misc.: $200
- Luxuries: $280
Keeping a tight budget is a must for anyone looking to save money
, but if you don't keep track of your expenses, you may find that it's difficult to stick to your goals. Keeping a running tally of how much you've spent on various types of expenses each month can help you identify "problem" areas and adjust your spending habits to fit your budget. However, keeping track of your expenses can require a serious attention to detail. While everyone should keep track of major expenses like housing and debt repayment, the amount of attention you devote to minor expenses generally increases with the seriousness of your financial situations.
Double check all payment amounts.
- It can be handy to keep a small notebook with you at all times. Get in the habit of recording every expense and saving your receipts (especially for major purchases). When you can, enter your expenses in a larger notebook or a spreadsheet program for your long-term records.
- Note that, today, there are many apps you can download to your phone that can help you keep track of your expenses (some of which are free).
- If you have serious spending problems, don't be afraid to save every single receipt. At the end of the month, divide your receipts into categories, then tally each up. You may be shocked by how much money you spend on purchases that are far from essential.
Always ask for the receipt when making a purchase in-person, and always print off a copy of any online purchases that you make. Make sure that you’re not being overcharged or billed for items that you do not want; you'll be amazed how often that happens.
Start saving as early as possible.
- Let's say you're at a bar with your friends and one of them orders margaritas for the group; make sure they don't end up going on your card. Depending on favors like this to be returned later on is one way to find yourself in a financial hole - potentially, a very deep, deep hole.
- Don't split the bill just for the sake of convenience. If your meal costs that of your friends, you should not pay for half of the bill.
- Consider downloading a phone app to help you more accurately calculate tips.
Money that's squirreled away in savings accounts usually accumulates interest at a set percentage rate. The longer your money
remains in the savings account, the more interest you accumulate. Thus, it's in your advantage to start saving as soon as you possibly can. Even if you're only able to contribute a tiny amount to your savings each month when you're in your twenties, do so. Relatively small amounts of cash left in interest-yielding accounts for long periods of time can eventually accumulate to several times their initial value.
Consider contributing to a retirement account.
- For example, let's say that, by working a low-paying job during your twenties, you eventually save up $10,000 and put this money into a high-yield account with a 4% annual interest rate. Over 5 years, this will earn you about $2,166.53. However, if you had put this money away one year earlier, you would have made about $500 more by the same point in time without any extra effort — a small but not insignificant bonus.
During the years when you're young, energetic, and healthy, retirement can seem so far away that it's almost not worth even thinking about. By the time you're older and begin to lose steam, it can be all
that you think about. Unless you're one of the lucky few who stand to inherit serious wealth, saving for retirement is something you'll need to think about once you establish a stable career — the sooner, the better. As noted above, though almost everyone's situation is different, it's wise to plan on having about 60-85% of your yearly income available to maintain your current standard of living for each year that you are retired.
Make stock market investments cautiously.
- If you haven't already done so, talk to your employer about the possibility of contributing to a 401(k). These retirement accounts allow you to automatically deposit a set amount of each paycheck in the account, making saving easy. Additionally, the money you deposit into a 401(k) is often not subject to the same taxes as the rest of the money in your paycheck. Finally, many employers offer proportional matching programs with their 401(k) services, meaning that they'll match a certain percentage of each payment.
- As of 2014, the maximum amount of money you are allowed to place in a 401(k) per year is $17,500.
If you've been saving responsibly and have a little extra money
at your disposal, investing in the stock market can be a lucrative (but risky) opportunity to make extra money
. Before investing in stocks, it's important to understand that any money
you invest in the stock market can potentially be lost for good, especially if you don't know what you're doing, so don't use this as a method for long-term saving. Instead, treat the stock market as a chance to essentially make educated gambles with money
you can stand to lose. In general, most people don't need to invest in the stock market at all to responsibly save for retirement.
Don't get discouraged.
- For more information on making intelligent stock investment decisions, see How to Invest in the Stock Market.
When you're having trouble saving money
, it's easy to lose your nerve. Your situation may seem hopeless — it may seem almost impossible to save up the money
you need to meet your long-term goals. However, no matter how little you're starting with, it's always
possible to begin saving money
. The sooner you start, the sooner you can be on your way to financial security.
Remove luxuries from your budget.
- If you're discouraged about your financial situation, consider talking to a financial counseling service. These agencies, which often operate for free or very cheap, exist to help you begin saving so that you can meet your financial goals. The National Foundation for Credit Counseling (NFCC), a non-profit organization, is a great place to start.
If you're having trouble saving money
, it's wise to start here. Many of the expenses that we take for granted are far from essential. Eliminating luxury expenses is a great first step to improve your financial situation because this won't impact your quality of life or your ability to perform your work significantly. While it can be difficult to imagine life without a gas-guzzling car and a cable TV subscription, you may be surprised how easy it is to live without these things once you remove them from your life. Below are just a few easy ways to reduce your luxury expenses:
Find cheaper housing.
- Unsubscribe from optional television or internet packages.
- Switch to a thriftier service plan for your phone.
- Trade-in an expensive car for one that is fuel-efficient and cheap to maintain.
- Sell any electronic gadgets going unused.
- Buy clothing and home furnishings from thrift stores.
For most people, costs related to housing make up the single biggest expense in their budget. Because of this, saving money
housing can free up a substantial amount of your income for other important activities, like saving for retirement. While it's not always easy to change your living situation, you'll want to seriously re-examine your housing situation if you're having a hard time balancing your budget.
Eat for cheap.
- If you're renting, you may want to try negotiating with your landlord for a cheaper rent. Since most landlords want to avoid the risk that comes with looking for new tenants, you may be able to get a better deal if you have a good history with your landlord. If you need to, you may be able to exchange work (like gardening or maintaining the house) for cheaper rent.
- If you are paying a mortgage, talk to your lender about refinancing your loan. You may be able to negotiate for a better deal if you're in good standing. When refinancing, try to keep the repayment schedule as short as possible.
- You may also want to consider moving to a cheaper housing market altogether. According to a recent study, the cheapest housing markets in the U.S. are in Detroit, Michigan; Lake County, Michigan; Cleveland, Ohio; Palm Bay, Florida; and Toledo, Ohio.
Many people spend much more on food than is necessary. While it's easy to forget to be thrifty when you're biting into a gourmet meal at your favorite restaurant, food-related expenses can become quite large if allowed to get out of control. In general, buying in bulk is cheaper in the long run than buying small quantities of food — consider getting a membership at a warehouse retailer like Costco if your food expenses are high. Buying individual meals at restaurants is the most expensive option of all, so making an effort to eat in rather than eat out can also save you lots of cash.
Reduce your energy usage.
- Pick cheap, nutritious foods. Rather than buying prepared, processed foods, try checking out the fresh food and produce aisles of your local grocery store. You may be surprised by how cheap it is to eat healthily! For instance, brown rice, a filling, nutritious food, can come in large, twenty-pound sacks for less than a dollar per pound.
- Take advantage of discounts. Many grocery stores (especially large chains) give out coupons and discounts at the check-out counter. Don't let these go to waste!
- If you frequently go out to eat, stop. It's generally much cheaper to cook a meal at home than it is to order an equivalent dish in a restaurant. Regularly cooking your own food also teaches you a valuable skill you can use to entertain friends, satisfy your family, and even attract romantic interests.
- Don't be afraid to take advantage of local free food resources if your situation is serious. Food banks, soup kitchens, and shelters can all provide meals for free to those in need. If you need help, contact your local Department of Social Services for more information.
Most people accept the price on their utility bill each month without question. In fact, it's possible to greatly reduce your energy usage (and thus your monthly bill) with just a few simple steps. These tricks are so easy that there's practically no reason to avoid them if you're looking to save money
. Best of all, reducing the amount of energy you use also reduces the amount of pollution you indirectly produce, minimizing your impact on the global environment.
Use cheaper forms of transportation.
- Turn off the lights when you're not around. There's no reason to leave the lights on if you're not in the room (or in the house), so flip them off when you leave. Try leaving a sticky note by the door if you're having a hard time remembering.
- Avoid using heating and A/C when it's not essential. To stay cool, open your windows or use a small personal fan. To stay warm, wear several layers of clothing, wear a blanket, or use a space heater.
- Invest in good insulation. If you can afford to pay for a substantial home improvement project, replacing old, leaky insulation in your walls with high-efficiency modern insulation can save you money in the long run by keeping your house's warm or cool internal air from escaping.
- If you can, invest in solar panels. As a serious investment in your own future (as well as the planet's), solar panels are the way to go. Though the up-front cost can be quite high, solar technology becomes cheaper with each passing year.
Owning, maintaining, and running a car can eat up a large portion of your income. Depending on how much you drive, fuel can cost you hundreds of dollars per month. On top of this, your car will also cost you in licensing fees and maintenance expenses. Instead of driving, use a cheap (or free) alternative option instead. Not only will this save you money
, but also potentially allow you to spend extra time exercising and cut down on the stress from your daily commute.
Have fun for cheap (or free).
- Investigate public transit options near you. Depending on where you live, you may have a variety of cheap options for public transit at your disposal. Most big cities will have metro, subway, or streetcar lines running in and out of the city, while mid-sized towns can have bus or train systems for you to use.
- Consider walking or biking to work. If you live close enough to your job for this to be feasible, both are excellent ways to get to work for free while simultaneously getting fresh air and exercise.
- Consider booking flights and train tickets in advance online, to not only save time but to also save money. Often 'Early bird' deals exist for those booking early.
- If taking a car is unavoidable, consider carpooling. Doing this allows you to share fuel and maintenance expenses with the other members of the carpool. Plus, you'll have someone to talk to during your commute.
While reducing your personal expenses can
mean cutting frivolous luxuries out of your life, you don't necessarily have to stop having fun if you're trying to save money
. Changing your leisure habits and recreational activities to more affordable ones allows you to strike the perfect balance between fun and responsibility. You may be amazed at the amount of fun you can have for just a few dollars if you're resourceful!
Avoid expensive addictions.
- Keep up-to-speed on community events. Today, most towns and cities will have an online events calendar listing upcoming events in the local area. Often, events put on by the local government or community associations will be cheap or even free. For instance, in a medium-sized town, it's often possible to explore free art exhibitions, see movies in a local park, and attend donation-based community rallies.
- Read. Compared to movies and video games, books are cheap (especially if you buy them at a used bookstore). Good books can be absolutely captivating, allowing you to experience life through the eyes of exciting characters or learn new things you might otherwise never have encountered.
- Enjoy cheap activities with friends. There is almost no end to the number of things you can do with your friends that require little or no money. For instance, try going on a hike, playing a board game, catching an old movie at a cheap second-run theater, exploring part of town you've never been to, or playing sports.
Certain bad habits can put a serious damper on your efforts to save money
. In worst-case scenarios, these habits can become serious addictions that are almost impossible to defeat without help. Worse yet, many of these addictions can be extremely hazardous to your health in the long term. Save your wallet (and your body) the trouble of going through these addictions by avoiding them in the first place.
Spend money on absolute essentials first.
- Don't smoke. Today, the harmful effects of smoking are well-known. Lung cancer, heart disease, stroke, and a variety of other serious illnesses are known to be caused by smoking.
On top this, cigarettes are expensive — depending on where you live, up to about $14 per pack.
- Don't drink excessively. While a drink or two with friends won't hurt you, regular heavy drinking can cause serious problems in the long run, like liver disease, impaired mental function, weight gain, delirium, and even death.
In addition, nursing an alcohol addiction can be a massive financial burden.
- Don't do addictive drugs. Drugs like heroin, cocaine, and methamphetamine are extremely addictive and can have a variety of seriously harmful (even lethal) effects on your health and can be much more expensive than alcohol and tobacco. For instance, country musician Waylon Jennings is purported to at one point have spent over $1,500 per day on his cocaine habit.
- If you need help overcoming an addiction, don't hesitate to contact an addiction hotline. Several relevant hotlines are listed here.
When it comes to spending money
, there are some things that you absolutely, positively cannot do without. These things (namely, food, water, housing, and clothing) are your first priority when it comes to spending your cash. Obviously, if you become homeless or suffer from starvation, it becomes very, very difficult to meet the rest of your financial goals, so you'll want to ensure that you have enough money
to cover these bare minimum requirements before devoting money
to anything else.
Save for an emergency fund.
- However, just because things like food, water, and shelter are important doesn't necessarily mean that you have to splurge on them. For instance, cutting down on the amount that you go out to eat is one easy way to drastically reduce your food expenses. Along the same lines, moving to an area with cheap rent or home prices is a great way to spend less on housing.
- Depending on where you live, housing costs can eat up a large chunk of your income. In general, most experts recommend against agreeing to any housing arrangement that will cost more than one-third of your income.
If you don't already have an emergency fund with enough money
in it so that you can survive if you suddenly lose your income, begin contributing to one immediately. Having a reasonable amount of money
stockpiled in a secure savings account gives you the freedom to comfortably sort out your affairs in the event that you lose your job. After you cover your essentials, you'll want to devote a chunk of your income to building up this savings account until you have enough saved to cover about 3-6 months
of living expenses.
Pay off your debt.
- Note that living expenses can vary based on the local financial climate. While it's possible to survive on $1,500 for a few months in Detroit or Phoenix, this might not even pay one month's rent for a cheap apartment in New York City. If you live in an expensive area, your emergency fund will naturally need to be bigger.
- Besides giving you the peace of mind of knowing that you'll be OK in the event of career difficulties, having an emergency fund can also earn you money in the long run. If you lose your job and you don't have an emergency fund, you may be forced to take the very first job you're offered, even if it doesn't pay well. On the other hand, if you can survive without working for a while, you can afford to be much pickier and potentially land a better-paying job.
Left unchecked, debt can seriously derail your efforts to save money
. If you're only making the minimum payments on your debt, you'll end up paying much more over the life of the loan than if you had paid it off more quickly. Save money
in the long-term by devoting a good chunk of your income to debt payment so that you can pay off your debt as quickly as possible. As a general rule, paying off your highest-interest loans first is the most effective use of your money
Put away money next.
- Once you've covered your essentials and built up a reasonable-sized emergency fund, you can safely devote almost all of your extra income to paying off your debt. On the other hand, if you don't have an emergency fund, you may have to split your extra income up so that you use a portion to pay off your debt each month while simultaneously diverting some into your emergency fund.
- If you have multiple sources of debt that are proving overwhelming, look into consolidating your debts. It may be possible to roll all of your debts into one loan with a lower interest rate. It's important to note, however, that the repayment schedules for these consolidated loans can be longer than those for your initial debt.
- You may also want to try negotiating with your lender directly for a lower interest rate. It's not in your lender's best interest to let you go into bankruptcy, so s/he may agree to a lower interest rate in order to allow you to pay off the loan.
- For more information, see How to Get Out of Debt.
If you've established an emergency fund and paid off all (or nearly all) of your debt, you'll probably want to start putting your extra money
in a savings account. The money
you save this way is different from your emergency fund — whereas you'll want to avoid dipping into your emergency fund unless you absolutely have to, your normal savings are available for big, important purchases, like repairs to the car you use to drive to work. However, in general, you'll want to avoid using your savings so that, over time, your total savings grow. If you can, try to devote at least 10 -15% of your monthly income to your savings starting in your 20s — most experts agree that this is a healthy goal.
Spend on smart non-essentials.
- When you get paid, it can be tempting to immediately make an impulse buy. To avoid this, deposit your savings into an account as soon as you get paid. For instance, if you're trying to save 10% of your income and you get a paycheck for $710.68, immediately deposit 10% (find this by moving the decimal point one space to the left), or $71.07. This practice can help you avoid unnecessary spending and accumulate a good amount of money over the years.
- An even better idea is to automate as much of the saving process as possible so that you don't even have the tempting money to begin with. For instance, talk to your employer about setting up an automatic deposit system through your bank or with a third-party app. This way, you can transfer a set amount or percentage of each paycheck to a checking or savings account without having to make any extra effort.
If, after adding a healthy amount of your income to your savings each month, you have extra money
left over, you should consider making certain non-essential investments that can improve your productivity, earn
ing potential, and quality of life in the long run. While these types of purchases aren't essential in the way that food, water, and housing are, they are smart long-term choices that can end up saving you money
Spend on luxuries last.
- For example, buying an ergonomic chair to sit in while you work isn't absolutely essential, but it is a smart long-term choice because it allows you to do more work while minimizing back pain (which, coincidentally, can be expensive to treat if it develops into a serious problem). Another example is replacing your home's old, troublesome water heater. While the old one may have sufficed in the short term, buying a new one means you won't have to spend money on repairs when the old one breaks, saving money in the long run.
- Other examples include purchases that allow you to get to work for cheaper, like monthly or yearly public transit passes, tools that help you work more effectively, like a phone headset if you're in a job that occupies your hands, and purchases that make it easier for you to work, like posture-improving gel inserts for your shoes.
isn't all about living hard and lean. When you've paid off your debt, established an emergency fund, and spent money
on smart purchases that pay off in the long term, it's OK to spend a little money
on yourself. Healthy, responsible luxury spending is one way to stay sane while working hard, so don't be afraid to celebrate getting your financial situation in order with a reasonable luxury purchase.
- Luxuries include anything that's not an essential good or service and provides little or no long-term benefit. This broad category can include things like trips to expensive restaurants, vacations, new vehicles, cable television, pricey gadgets, and much more.