So you want to save more money? I’m sure you’ve found that this desire can be quite hard to implement. Well I can help you with that :). In this post I’ll walk you through my 5 best ideas for saving money. All these ideas are practical, tactical and actionable, meaning that you have all the information you need right here to go back and implement right away! So let’s get right into it.
1 | Create a Plan to Save Money (i.e., Budget)
So it all starts here…if you don’t have a plan for how you will save money, then you literally won’t even have an idea on how much money you can save. To start, I recommend that you go back through your credit card, bank, and any other financial statements that you have to understand how you spent money in the last month. It’s even better if you take a look at 2-3 months, as you can better see trends in spending that you’ve had.
Next, take a look at your monthly income and subtract that from the amount you’ve been spending on a month-to-month basis. Take a quick step back and evaluate where you are. Is your income greater then your spending? If yes, then ask yourself the following questions:
- Am I saving the amount that I want save each month?
- Should I be saving more?
If your income is currently trending lower then your spending, then you will need to take a harder look at what’s going on. I’d start by asking yourself these question:
- What am I spending too much money on today?
- What can I stop spending money on right now to change my situation?
By really thinking through the questions presented here, you’ll be able to start seeing the ways you can change your finances for the better. To aid this thought process, I recommend using the 50/30/20 Budget Calculator (which you can download below), to understand how you should split up your finances.
Your next step is to build out a budget! I know, not the most exiting thing to do, but by using the spreadsheet tool above, you should be able to set it up in no time! I do recommend that you use the 50/30/20 Budget, as it’s easy to categorize all of your expenses. For a detailed overview of how this budget works, visit my post on this topic. Be careful to document how much you are targeting to save each month, and be realistic about the amount.
RELATED: The 50/30/20 Budget
I’m just going to introduce this here: you NEED to automate your savings! Once your plan is in place, and you commit to keeping your spending under control, there is no better way to make your savings grow then doing automatic pulls from your checking account. Automate your regular savings and your investments – you won’t regret it! Keep this in mind as we go through the remainder of this post…
2 | Open a High Interest Savings Account
Now that you’ve identified how much money you are going to save each month, let’s start talking about where to put it. The very first thing you should open (if you haven’t already) is a High Interest Savings Account. There are many of these accounts online that provide customers with interest rates of at least 1.50%, meaning that your return will be in actual dollars and not just a few cents a year, like most banks.
In terms of usage, think of this account as the place where you’ll (initially) save your emergency fund. I’d target at least $1000 for this one. Once you have that fund set up, you’ll likely use this same account to build and grow that fund to include at least 6 months of expenses over time.
Recommended Savings Accounts:
I recommend that you check out one or more of the following as you explore account options:
- Sofi Money – My FAVORITE online savings account that functions as kind of a cross between that and a checking account as well. The best part is that you don’t have any international fees or ATM fees if you use the card out of the country, so it’s great for travelers! (Note, if you use my link, you’ll get $25 to sign up!)
- Ally Savings – Ally offers similar savings rates to Sofi Money, and is easily combined with a checking account. Note that while international fees aren’t typically waived, you can get standard ATM fees waived as well.
- MySavingsDirect – This bank does not offer an ATM card at all, it does typically have a higher interest rate then the others listed here. Great option if you just want to set up savings and leave them alone.
3 | Increase Your 401K Contributions
One way to painlessly grow your savings is to gradually increase your 401K contributions. To keep it from hurting too much, just increase it by 1% a year, you’ll barely even notice it. I do that now, and have found it to be quite effective in keeping my account growing nicely. Note, I’m writing this assuming that you have already set up 401K contributions with your employer, but I do realize this may not apply to everyone. If you are self-employed, you should look into setting up your own private account.
Brokerages like Vanguard and Charles Schwab offer traditional and Roth IRAs, which you can use in place of an employer-led version. Whatever you do, it’s great to have retirement accounts set up for the future so that one day you no longer have to worry about working. And no matter how tempting it may be, DO NOT withdraw any money from your retirement account. This will help you avoid penalty fees, and also ensure that your money has time to get that compound interest.
4 | Open a Personal Investment Account
Once you have at least $1000 in your emergency fund and have initiated your retirement contributions, you can then start thinking about other investments. For the purposes of this post, we’ll briefly focus on personal investments. If you’d like to go the simple route (like I do) I recommend exploring Index Funds (or Mutual Funds) who have historically performed well to invest in. For those of you with more time and patience, you could also look into investing in individual stocks we well.
It’s really a smart idea to put more money into investments once you have your emergency fund fully built out. The reason for this being that you want your money to beat inflation. Even with a high-interest savings account, you’ll never beat the rate of inflation if you don’t have money in a retirement fund and/or personal investment account.
5 | Only Spend Money on What Makes You Happy
For those of you who are guilty of overspending, part of the reason may be that you buy things impulsively, and don’t really consider how what you are buying impacts you in the long term. No one likes spending money on things they ultimately do not like or making purchases that make them unhappy. There are two steps you can take now to address this:
Think About What Makes You Happy
Here are a few questions to ask yourself on what specifically makes you happy:
- What activities bring you joy?
- What experiences bring you joy?
- What things am I spending money on today that i dislike?
Stop Impulse Spending – Especially Online
One way to kind of force yourself to only spend on what you enjoy, you should give yourself some time to think before you push that buy button. Think to yourself:
- Why am I making this purchase?
- Will this purchase keep me happy in the long term?
- Can I buy a similar item somewhere else for a lower price?
- Do I need it? If so, why?
In addition to asking these questions, give yourself 2 whole days to think about the purchase. That will help you see if you still feel the same way about it after thinking about it more objectively.
In Summary | The Best Ideas for Saving Money
That concludes may five best ideas for saving money. I hope you’ve found these ideas practical, and that you can start applying them to your personal finances today. Let me know if you have other ideas for saving money that have worked for you by writing them in the comments below!
- Overview of the 50/30/20 Budgeting Method
- Money Mindset for Her Course Review
- Review of the Sofi Money Bank Account