Sometimes the hardest thing about saving money is just getting started. It can be difficult to figure out simple ways to save money and how to use your savings to pursue your financial goals.
This step-by-step guide can help you develop a realistic savings plan.
1. Start by recording your expenses
The first step in saving money is to know how much you’re spending. For one month, keep a record of everything you spend. That means every bottled water, every newspaper, transportation costs, and every snack you purchase for the entire month.
Once you have your data, organize these numbers by category—for example, transport, communication, groceries, loan and so on—and get the total amount for each.
2. Make a budget
Now that you have a good idea of what you spend in a month, you can build a budget to plan your spending, limit over-spending and make sure that you put money away in special savings for emergencies.
Remember to include expenses that happen regularly, but not every month, like car maintenance check-ups.
3. Plan on saving money
Taking into consideration your monthly expenses and earnings, create a savings category within your budget and try to make it at least 10-15 percent of your net income.
If your expenses won’t let you save that much, it might be time to cut back. Look for non-essentials that you can spend less on—for example, entertainment and dining out—before thinking about saving money on essentials such as your vehicle or home.
4. Set saving goals
Setting savings goals makes it much easier to get started. Begin by deciding how long it will take to reach each goal. Some short-term goals (which can usually take 1-3 years) include:
- Saving money for a trips
- Saving to buy a new car
- Saving to pay taxes (if they are not already deducted by your employer)
Long-term savings goals are often several years or even decades away and can include:
- Saving for retirement
- Putting money away for your child’s college education
- Saving for a down payment on a house or to remodel your current home
5. Decide on your priorities
Different people have different priorities when it comes to saving money, so it makes sense to decide which savings goals are most important to you.
Part of this process is deciding how long you can wait to save up for a goal and how much you want to put away each month to help you reach it.
As you do this for all your goals, order them by priority and set money aside accordingly in your monthly budget. Remember that setting priorities means making choices.
If you want to focus on saving for retirement, some other goals might have to take a back seat while you make sure you’re hitting your top targets.
6. Make saving money easier with automatic transfers
Automatic transfers to your savings account can make saving money much easier. By moving money out of the account with which you receive salaries or wages, you’ll be less likely to spend money you wanted to use for savings.
There are many options for setting up transfers. You choose how often you want to transfer money and which accounts you want to use for the transfers.
Thinking of saving as a regular expense is a great way to keep on target with your savings goals.
8. Watch your savings grow
Check your progress every month. Not only will this help you stick to your personal savings plan, but it also helps you identify and fix problems quickly.
With these simple ways to save money, it may even inspire you to save more and hit your goals faster.