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The phrase "saving money" can spike anxiety in even the calmest people. You know you need to save to secure your financial future, but when money's tight, it can seem like an impossible dream.
The first thing you need to know is saving is possible, if even just a small amount for an emergency fund. There's no single approach for saving—the best way for you will depend on your specific situation. Perhaps you don't have much credit card debt but need to find ways to cut spending. Or maybe you need to pay down debt to save on interest that is hurting your financial situation.
One thing is certain: No matter how much you earn, the best way to get ahead financially is to map out a plan so you're spending less and saving more.
How to Start Saving Money
The first step to saving money is thinking about your goals. Why do you want to save money? Perhaps you don't have an emergency fund and want the security of knowing you're covered if an unexpected expense arises. Or maybe you're trying to squeeze some extra cash out each month to start saving for a down payment on a house or your retirement. You might have a goal to save up for something fun like travel or tickets to that music festival you've been wanting to go to for years. By setting a goal (or several), you can focus on the benefits you'll get from saving instead of feeling deprived or cheated about the things you're giving up.
Saving money can reduce financial stress and improve your life in many ways. But if you're not in the habit of saving, getting started can be a challenge. If you're unsure where to begin, here are two ideas to help.
Pay Down Debt
If you owe a large amount of outstanding debt, especially on high interest credit cards, paying down that debt can save you a lot of money in the long run and is a good first step toward saving. To figure out how much debt you actually owe—and to monitor your progress once you start paying it down—check your free credit report.
Write down all of your debts, focusing on revolving or high interest accounts first. From there, you can figure out how much extra money you can apply toward eliminating those debts each month.
Your best bet with credit card accounts is to pay them off in full each month. However, until you can reach that goal, saving on interest offers another way to help you pay down your debt so you can start saving more. Here are a couple ways to do that:
- Get a balance transfer card. If your credit scores are in decent shape, you might be able to qualify for a new balance transfer credit card offer with a low introductory interest rate. These offers can motivate you to tackle your credit card debt more aggressively because you'll have a period where you'll pay no or low interest on your balance. But you need to manage these cards wisely because once the introductory low rate ends, you don't want to end up with a large balance at perhaps an even higher rate than you were paying before. For more information on whether a balance transfer card might be right for you, see "Should I Make a Balance Transfer?"
- Consider a debt consolidation loan. Consolidating your credit card debt could help you save money on interest as well, though likely to a lesser degree. Paying off your outstanding revolving debt with an installment loan may help you get a better handle on your monthly expenses because you'll have just one payment to make each month instead of several, provided you manage the new account properly and don't take on more credit card debt.
There are several other approaches to paying down your credit card balances; check out these tips for paying off your credit cards for more.
At first, applying extra money from your income to pay down debt might seem like it's costing you more and taking away from your savings goals, but stick with it. In reality, paying down high interest debt will save you money on costly interest and create additional room in your budget once your debt is paid off. For more, see "How to Get Out of Debt."
Create a Budget
Putting as much money as you can toward paying off your credit card debt will eventually free up more money to help you reach your savings goals, but you might even be able to set aside more than you think. The key to figuring out where you can find extra cash to put toward your debt and your savings goals is creating a budget.
The first step to creating a budget is tracking your spending. However you manage your money—through an online financial management service, your trusty checkbook or payment apps—figure out how much you spend each month in the following areas:
- Fixed expenses. These are your regular monthly expenses, or overhead, including rent or mortgage, car payment, student loan payment, utility bills and the like. For bills such as gas and electricity that can vary over the course of a year, figure out the average you pay each month. Experts also recommend committing to a certain amount, even as little as $25 a week to start, to an emergency fund if you don't already have one. While not technically a fixed expense, considering it one will help you stay on track with your savings plan if unexpected expenses pop up.
- Variable expenses. These expenses are not set and can fluctuate each week, month or year. They include groceries, entertainment, gas, personal services and more.
This exercise will give you a good idea of where you can cut back. Map out your monthly expenses and be sure to include your savings goals alongside your monthly bills. Even if you begin by saving just 2% of your income to put toward your goals, it's a start. If you can afford to save a larger amount, go for it. As you save money in specific areas (more on that below), you can free up extra money to set aside for those bigger goals you're trying to achieve.
How to Save Money Daily
Figuring out how to save money each month starts with smaller, daily decisions. When you cut daily spending, you can supercharge your budget, potentially helping you reach your savings goals sooner. Check out these five areas where you might be able to save money on a daily or weekly basis.
When it comes to groceries, there are almost countless ways to save. You can plan your meals around your grocery store's sale flyer, clip coupons, use price comparison apps to find the best prices on the ingredients you need, or shop at a store that offers price matching. One of the best ways to save on groceries is to make a weekly meal plan—for all your meals—and stick to it. Without a plan, it's easy to justify hitting a fast-food restaurant on your way home from work or going out to lunch more, which can add up fast. You don't need to cut out all meals out (see below), but find the best strategies that work for you so you can enjoy the savings.
One way to offset expensive fuel costs is to open a credit card that offers attractive rewards for gas purchases—as long as you only use it for gas expenses and pay it off each month. Apps like GasBuddy can help you compare fuel prices at your local gas stations as well. Finally, if you live near a coworker, don't overlook the fact that carpooling can be great for your wallet (not to mention the environment).
You don't have to give up everything you enjoy, but entertainment is an area where you might be able to spend less. Consider downgrading to basic cable, or cutting the service altogether and swapping it for a more affordable streaming service like Netflix or Hulu. If you don't already have one, get a library card—it's your ticket to free books, audiobooks, movies, TV series, games and music. If you like museums, find out which day of the month they're free to the public and go then. And look for discount tickets on entertainment websites.
Reducing the number of times you eat out per week is a great way to put some money back into your budget. Instead of dining out for dinner, consider doing so for lunch when prices tend to be less expensive. You can also brown-bag your lunch on workdays to cut down on food costs. With more fast-casual restaurants than ever—offering some delicious choices—opt to bus your own plate in return for a great meal at a lower cost. Or make it an earlier—and cheaper—night by hitting up a happy hour instead of going out to an expensive dinner.
- Apparel and services
If you're willing to buy used clothes when you need them, the amount of money you can save on your clothing bill could be substantial. For new apparel, check sales and websites like RetailMeNot in advance to see if any discounts might be available for your upcoming purchase. When it comes to services, see if there's anything you can forgo to make your budget stretch. Cutting your own grass or adding a week or two between haircuts might add up to more savings than you realize.
How to Save Money Monthly
On top of finding ways to save money daily, cutting down your monthly expenses can help you put more cash toward your bigger goals. Take a look at these four areas for opportunities to cut spending.
- Utilities, telecom and public services
Want to limit your energy usage? Try a programmable thermostat to cut back during times you won't notice the difference (like when you're sleeping or out of the house). A tankless water heater can also lower utility costs, though it will take time for those savings to overtake any upfront costs required to upgrade. Put off buying a new cell phone as long as you can, and make sure your plan fits your needs.
- Health care
Apps like GoodRX might help you to save money, even if your insurance plan offers prescription drug coverage. Setting up a flexible spending account at work might help you take advantage of tax breaks on health care costs as well. And of course the best way to save on health care costs: Exercise often and eat well.
Is your mortgage interest rate higher than the rates currently available to homebuyers? If so, you might want to consider refinancing your loan to potentially reduce your monthly payment and save on interest. It's also a good idea to compare your homeowner's insurance rates each year to make sure you're getting the best coverage at the lowest cost available. If you're renting, consider a less expensive place while you pay off debt and build your savings, or get a roommate who can share expenses.
- Recurring monthly costs and subscriptions
If you're like many people, you might not remember all of the recurring monthly bills you signed up to pay. Apps like Truebill can help you to find your monthly subscriptions and cancel the ones you no longer need or want.
Slow and Steady Wins the Race
Transforming yourself from a spender to a saver takes time. Remember to be consistent and patient with yourself as you start to make progress. Celebrate small victories, and as long as you don't give up, those accomplishments can come together to help you achieve some big goals in the future.
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