For many of us, saving money doesn't come naturally. About 55 million people, representing one-quarter of Americans, have no savings at all1. And 40 percent of Americans2 sometimes struggle to pay for basic needs such as food and housing, which means having savings is even more important.
Everyone knows you should save money— not only can your savings help you avoid depending on credit cards and other forms of debt in the event of unexpected expenses, but it can also help you reach your financial goals, like preparing for retirement or purchasing a car, a home, or an education. While tackling those huge goals can seem overwhelming it can actually be simpler than you think. Just start small and keep it simple. These five tips will help you reach those bigger goals, one step at a time.
1. Set one specific goal.
Rather than socking away money into a savings account, set specific goals for your savings. If you don't have an emergency account, start with a goal to save enough to cover a home repair, car repair, or other unplanned expense that you'll inevitably face. When you've reached that goal, set another—with the ultimate goal of saving about three-to-six-months' worth of expenses in an emergency account. Do this and you'll have a cushion in the event of a job loss or other unexpected event. Apply this same principal for any of your financial goals or aspirations. Looking to buy a housewithin the next year? Perhaps you’re getting married or want to take an extra special vacation. When you have a goal that you’re working toward, saving money becomes more satisfying and not another chore.
2. Budget for savings.
Just because you decide to save doesn't mean it's going to happen. If you're accustomed to spending your entire paycheck, changing that habit will take some planning. Ease into it by starting small – take the $5 you would normally spend on coffee and put it in an account. Each week up the amount until you’re saving about 10 to 15 % of your paycheck. If you don't have a budget or a spending plan, sit down and write one out. Just as you include a line item for each of your monthly bills, also include a line item for saving and don't allow yourself to spend it on anything else.
3. Make saving automatic.
It can be easy to forget to deposit money into your savings account each week or month — and it's also easy to spend it before you move it. Avoid both of those problems by setting up an automatic deposit from your paycheck into your savings account. You can also set up an automatic transfer from your checking account to your savings account to ensure that a certain amount is set aside each week or month.
4. Keep separate accounts.
If you think you'll be tempted to transfer your savings into your checking account, open a savings accountat a different bank from where your accounts are located. If your savings aren't easily accessible, you're less likely to dip into them unnecessarily.
5. Monitor & watch it grow.
Keep track of your account and your progress toward your goal. It’s exciting to set a goal and see your hard work pay off as you build toward it. When you start seeing your savings account balance grow, it can be tempting to dip into it to pay bills or splurge on something you want. Commit to leaving the money there and using it only for emergencies or whatever financial goal it was intended.
Remember, getting started is the hardest part. Don’t worry whether you can put all of these tips into action. Every step is a huge step in the right direction. Your future self will thank you when you reach your goals and have your savings safety net.
FAQs
How about this instead - the 50/15/5 rule? It's our simple rule of thumb for saving and spending: aiming to allocate no more than 50% of take-home pay to essential expenses, 15% of pre-tax income to retirement savings, and 5% of take-home pay to short term savings.
What is the rule of 5 savings? ›
How about this instead - the 50/15/5 rule? It's our simple rule of thumb for saving and spending: aiming to allocate no more than 50% of take-home pay to essential expenses, 15% of pre-tax income to retirement savings, and 5% of take-home pay to short term savings.
What are the 4 steps to saving? ›
Let's start with your monthly budget.
- Step 1: Make a budget. A written budget maps out your income and expenses by showing where your money goes, month-to-month. ...
- Step 2: Plan your savings. That extra money can build for the future. ...
- Step 3: Manage your debt. ...
- Step 4: Invest.
How to Kickstart Your Savings Journey: A Beginner's Guide
- Define Your Goals: ...
- Create a Budget: ...
- Set Realistic Savings Targets: ...
- Automate Your Savings: ...
- Track Your Progress: ...
- Cut Expenses and Find Ways to Save: ...
- Build an Emergency Fund: ...
- Avoid Impulse Buying:
The fiver challenge - save £7,000
This challenge works the same as the 52 week challenge, but you go up in multiples of £5 rather than £1. So week one = £5, week two = £10, all the way up to week 52 at £260. Alternatively, if you're not in the position to save these larger amounts, you could save £5 every week instead.
What is the golden rule of saving money? ›
According to Priti Rathi Gupta, Founder of LXME, as a salaried woman, you can follow the 50:30:20 Rule, which is the golden rule of budgeting. It is a great idea to start with which allocates 50% of your income to needs, 30% to wants, and 20% to savings and investments.
What is the 7 rule for savings? ›
The seven percent savings rule provides a simple yet powerful guideline—save seven percent of your gross income before any taxes or other deductions come out of your paycheck. Saving at this level can help you make continuous progress towards your financial goals through the inevitable ups and downs of life.
How to save in 3 steps? ›
The following 3 steps can help you reach your savings goal.
- Draw up a budget. Making a monthly budget is essential if you want to save money in a strategic way. ...
- Build a contingency fund. If your budget is balanced or shows a surplus, the coast is clear for you to put some money aside. ...
- Save in a systematic way.
These seven tips may be able to help.
- Understand your current financial habits. Not sure how to start spending less? ...
- Create an effective budget and stick to it. ...
- Look for ways to reduce spending. ...
- Set financial goals for future success. ...
- Save for emergencies or major purchases. ...
- Pay down debt. ...
- Stay aware of lifestyle creep.
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- Focus on small changes in various budget categories.
- Automate your savings into a high-yield savings account.
- Earn interest on your checking account.
- Use those three-payday months to save more.
- Keep a budget.
- Shop around for insurance rates.
- Refinance your mortgage.
- Find a way to save on rent.
The premise of the 30-day savings rule is straightforward: When faced with the temptation of an impulse purchase, wait 30 days before committing to the buy. During this time, take the opportunity to evaluate the necessity and impact of the purchase on your overall financial goals.
What are the 6 steps to starting a savings plan? ›
The Financial Planning Process
- Step 1: Set Goals. While this seems pretty basic, this step often gets overlooked. ...
- Step 2: Gather facts. ...
- Step 3: Identify challenges and opportunities. ...
- Step 4: Develop your plan. ...
- Step 5: Implement your plan. ...
- Step 6: Follow up and review yearly.
The £1 savings challenge involves putting £1 away each day for a year, saving you £365 in 365 days. Whether you choose to do this daily, weekly or monthly, you could transfer money into your savings account to take the temptation to spend away. You could even set up a standing order to make it super easy.
What is the $5 challenge? ›
Save Every $5 Bill Challenge
If you are a cash user, then this is one of the easiest ways to save money. You simply save every single $5 bill you get. So, whenever you get change you will be hoarding those $5 bills like a chipmunk collecting nuts for winter.
How to Save $5000 in 3 months challenge? ›
You can save over $5,000 in just over three months with the 100 envelope challenge. It works like this: Gather 100 envelopes and number them from 1 to 100. Each day, fill up one envelope with the amount of cash corresponding to the number on the envelope. You can fill up the envelopes in order or pick them at random.
What is the 70 20 10 budget rule? ›
The 70-20-10 budget formula divides your after-tax income into three buckets: 70% for living expenses, 20% for savings and debt, and 10% for additional savings and donations. By allocating your available income into these three distinct categories, you can better manage your money on a daily basis.
What is the 50-30-20 rule of money? ›
The 50-30-20 rule is a common way to allocate the spending categories in your personal or household budget. The rule targets 50% of your after-tax income toward necessities, 30% toward things you don't need—but make life a little nicer—and the final 20% toward paying down debt and/or adding to your savings.
What is the 50 20 30 rule for savings account? ›
The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.
What is a 50/30/20 budget? ›
The idea is to divide your income into three categories, spending 50% on needs, 30% on wants, and 20% on savings. Learn more about the 50/30/20 budget rule and if it's right for you.
