Apart from inheriting money or winning the lottery, saving money is one of the most important steps toward financial freedom. While the concept is simple, many people struggle to put it into practice.
Recent data shows how common this challenge is:
- 37% of Americans don’t have enough savings to cover a $400 emergency expense.
- 21% of people have no emergency savings at all.
- Nearly 20% of households earning more than $150,000 per year still live paycheck to paycheck.
While saving money might seem impossible, it is achievable with a bit of work. Below are a few things you can do to either start saving money or increase the amount you are currently saving.
1) Create a Budget
If there is one financial habit that changes everything, it is creating a budget. If you want to buy a house, start investing, or buy a car — CREATE A BUDGET!
I talk about this in more detail in Budgeting 101, but the basic idea is simple. It will be difficult to save money if you do not understand where your money is being spent.
If you cannot currently save, budgeting will help you identify the problem. Ask yourself a few questions:
- Are you spending too much money eating out?
- Are daily trips to Starbucks adding up?
- Are you managing expenses well but simply need to increase your income?
If income is the issue, you may need to find ways to advance your career. This might mean pursuing additional schooling, changing jobs, or starting a side gig.
2) Review Your Expenses Regularly
Creating a budget is only the first step. You must also review your expenses each month to ensure you are staying within the limits you set.
A budget means nothing if it is not reviewed regularly. For example:
- Are you spending $500 per month on entertainment when you only budgeted $250?
- Are daily trips to Starbucks creating a problem?
- Do you have too many subscriptions?
Subscriptions are a major issue today as more households cut the cord from traditional cable services. With fast internet speeds and unlimited online content, it is easier than ever to switch to streaming services.
However, the downside is that people often sign up for multiple services and forget about them. Free trials frequently turn into recurring charges because people forget to cancel.
Reviewing your monthly expenses will help you catch these problems. You may also discover services that are now cheaper than when you originally signed up.
3) Automate Your Savings
Your budget should allocate a specific dollar amount to savings each month. The easiest way to make this happen is to automate the process.
- Direct deposit part of your paycheck directly into a savings account.
- Set up an automatic transfer from checking to savings each month.
As mentioned in Things to Consider in a Savings Account, many people prefer keeping savings at a different bank than their checking account so it is not constantly visible.
There are many good online options available today. Examples include SoFi, American Express High Yield Savings, and Marcus by Goldman Sachs.
4) Eat at Home
Eating at home is significantly cheaper than eating out, especially as restaurant prices have increased in recent years.
The other day my son and I stopped at Five Guys, which we both love. Two bacon cheese hotdogs and one order of fries cost over $30.
It was enjoyable, but we could have eaten at home for much less.
If you bring lunch to work instead of eating out, the savings can add up quickly. This change alone can save hundreds of dollars per month.
5) Reduce Impulse Buying
Impulse purchases can derail even the best financial plans. Creating a miscellaneous category in your budget can provide flexibility while still keeping spending under control.
6) Refinance Your Debt
Reducing the interest rate on loans or credit card balances can free up extra money each month.
Balance transfers, refinancing, or consolidation loans can help reduce the total interest paid over time.
Take a look at your credit cards, car loans, and other debts to see if you can secure better rates today.
Conclusion
There are many additional things you can do to improve your financial situation, such as reducing electricity usage, quoting your auto or home insurance every 2–3 years, carpooling, and shopping smarter.
However, implementing even a few of these ideas can put you on a path toward saving money.
If you are just beginning your savings journey, your first goal should be to build an Emergency Fund.
You never know what life will throw at you. Ideally, you should build savings that cover three to six months of essential living expenses.
Having this financial cushion can provide peace of mind and help you navigate unexpected financial challenges.
