Saving money is essential for handling emergencies, achieving short- and long-term financial goals and living a more financially stable life. But challenges such as high expenses, limited income and ineffective planning can make saving difficult.
In this article, the MarketWatch Guides team will discuss strategies for saving, including options for cutting expenses and increasing income, and offer tips on overcoming common savings challenges.
Key Takeaways
- Some of the best ways to save money include sticking to a planned budget, finding more income sources, avoiding impulse spending and automating the savings process.
- Saving is important for reducing your everyday financial stress and planning for future needs — both goals and unexpected expenses.
- Your economic situation can impact the best ways to save money over time.
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Understanding the Importance of Saving Money
Having savings is an important step toward becoming financially stable. For instance, an emergency fund could prevent financial hardship if something unexpected — such as illness, costly repairs or job loss — affects your family. Plus, it could keep you from running up debt in such situations.
Your savings can also open up options you might not otherwise have. Perhaps you’re looking to get married, buy a house, travel overseas or launch your dream business. If you’ve planned well and built up substantial funds for a down payment or the full cost, achieving such goals becomes more realistic. The same applies to everyday purchases.
Finally, saving money is essential for your long-term personal finances, especially during retirement. Aside from income sources such as Social Security, a large sum saved in an investment account is usually essential for a stable retirement, so contributing early and often is key. Plus, your savings help with estate planning and can be passed down to loved ones.
Setting Realistic Savings Goals
Set short-, mid- and long-term goals. Your short-term goals should be within a year and include things like building your emergency savings. Mid-term goals, such as purchasing a home, are one to five years away, while long-term goals, such as retirement, are further out. Here are a few strategies to help you set realistic savings goals.
The S.M.A.R.T Strategy
The S.M.A.R.T. strategy — smart, measurable, achievable, realistic and time-bound — can help you choose realistic goals. You’ll need to specify what you want to do, have a way to measure your progress and set a deadline. A good example would be deciding to automatically save $200 monthly toward the $2,400 vacation your family will take in one year.
Since you’ll probably have several goals, prioritize them wisely. Besides looking at the amount, consider how urgent and important the goal is. For example, if money is tight, you might prioritize your emergency fund over saving for a new computer. Just try to avoid deprioritizing crucial long-term goals such as your retirement savings.
The 30-Day Savings Rule
To reduce your impulse spending, consider the 30-day savings rule. Rather than making a nonessential purchase right away, hold off for 30 days. During that time, carefully consider the purchase and payment options. You might realize you don’t want it anymore and thus avoid unnecessary spending.
But as Alejandra Rojas, money mentor and host of The Money Mindset Show, points out, “I love the essence of the rule, but I think 30 days is too long and it causes the cycle of wanting the item to be triggered back again. I usually say if you don’t find value, use and priority within the next 48 hours, then let it go.”
The 50/30/20 Rule for Budgeting
The 50/30/20 rule can make it easier to achieve savings goals and reign in your spending. It suggests the following budget allocation for your monthly post-tax earnings: 50% for your needs (such as housing, utilities, food and healthcare), 30% for your wants (such as entertainment, trips and other nonessentials) and 20% for investments, savings and debt repayment.
For example, say you bring home $5,000 per month after taxes. You would limit your needs to $2,500 and nonessentials to $1,500 and then use the remaining $1,000 for savings and investments.
Budgeting Basics: The Foundation of Saving
Effectively saving money is difficult without a budget, which provides a clear plan for your income. By looking at your monthly income and typical expenses, you’ll know how much cash remains for savings and other goals. Plus, you’ll have something to refer to for tracking your spending and spotting problematic money habits.
Whether you use a spreadsheet, make it by hand or download a budgeting app, you can follow these basic steps to make a comprehensive budget:
- Find your monthly income: Total your household’s income from sources such as jobs, side gigs, government payments and passive earnings. You might need to use an average if your earnings fluctuate.
- Assign funds to expenses and goals: Use documents including credit cards and bank statements as needed, list all monthly expenses and don’t forget to account for irregular items such as six-month insurance premiums. Then, allocate funds to your savings goals and any debt payoff.
- Calculate your remaining funds: Find your total income minus the total amount for goals and expenses to see if you get zero. If you’re left with a negative or positive amount, revisit your goals and expenses.
- Rework the budget as needed: You may need to cut things or move funds around to get your budget out of the negative. If there’s anything left over, consider putting the cash toward your savings for faster progress.
Tracking Expenses
During the month, note whenever you spend or transfer funds and refer back to your budget. You can find templates online or make one to track expenses by hand, but budgeting apps can automate much of this, save you time and analyze your transactions. These apps might connect to your financial accounts, warn you when you’re over budget and help you track savings goals.
Watch for trends in your spending patterns and adjust your money habits to get back on budget. That could include cutting another expense to compensate or stopping spending in a particular area. Also, be sure you’re putting aside the planned amount toward your savings.
Cutting Expenses: Practical Ways To Reduce Spending
Many money-saving tips center on cutting your everyday spending since that’s cash that could go toward your savings. Here are some ideas for spending less on common expenses:
- Housing: Try doing simple maintenance and repair tasks yourself and consider options such as renting out space to cover your housing costs.
- Groceries: Look for bargains, coupons and rewards programs that save you money at the grocery store. Consider choosing generic essentials, buying bulk items and avoiding things not on your list.
- Utilities: Rethink your thermostat setting, use efficient appliances and turn off unneeded equipment to cut energy costs. Be cautious about water use as well.
- Insurance: Revisit essentials such as your home, health and car insurance plans. Looking for other insurers or changing policy terms could save you money.
- TV, internet and phone: Whether it’s your cable or cell phone plan, ensure you don’t have more than you need and ask about promotions.
- Transportation: Limit trips or consider alternatives such as walking, biking or taking the bus to save. When driving, try apps such as GasBuddy, Waze and Upside to find cheap fuel.
- Medical care: Pick your providers wisely, opt for generic medications and know your insurance benefits well.
- Entertainment: Find free activities and entertainment and cut out unused subscriptions such as streaming services.
- Household items: For clothes, home appliances and other items, check for sales and consider used options. You might be able to repair or make certain items as well.
Since you might encounter limits in cutting expenditures, try boosting your income to accelerate your savings. This can include both your main job and any side opportunities.
Depending on your work situation, you might qualify to earn more through overtime hours, bonuses, commissions or tips. If your current pay isn’t competitive and you can build a good case, you could ask your company about a potential raise. A new position via a promotion or new employer might also make sense.
Look into flexible freelance and side-hustle opportunities to build even more savings. Some examples include using gig work apps, tutoring students or helping neighbors with household tasks. You could also sell things you create, rent out possessions and use various rewards apps.
Effective Saving Strategies
You need a clear plan for saving extra cash to reach your short- and long-term goals. Some useful strategies include:
- Automating savings: To prioritize saving, schedule automatic transfers, allocate some of each direct deposit to your savings account and consider checking account features including debit card roundups.
- Using high-yield savings accounts: Since traditional bank accounts pay very little, your funds will grow faster with a high-yield savings account, which can offer interest rates of 4% to 5% through online providers.
- Implementing the envelope system: Budgeting using labeled envelopes filled with cash could help you save more each month and avoid debt.
- Taking advantage of employer retirement matches: Try to dedicate at least up to your employer’s 401(k) match from your salary to enjoy free funds as you build your retirement savings.
- Utilizing cashback and rewards programs: Take advantage of credit card rewards, store loyalty programs and shopping apps to potentially earn cash and other rewards that help with saving money.
Overcoming Saving Challenges
Even if you’re committed, your current situation may involve obstacles that make saving money challenging. Perhaps you have high credit card debt, live on a low income or face an emergency expense. Stay in the savings mindset and regularly contribute whatever you can, even if only a little.
“When you encounter challenges, the question to ask is, how can I continue training this muscle as I go through these other things?” Rojas said. “For instance, you may want to implement a saving while paying debt reward system where for each $100 you pay off from your debt, you commit to putting $10 into savings no matter what.”
Also, look for ways to fix your financial problems. Consider ways to consolidate your debt through a loan or a balance transfer card with a low annual percentage rate. Talking to a financial advisor is also a good process for understanding your situation and devising a solution.
How To Save Money Fast
An emergency or urgent goal might call for building substantial savings quickly. If you don’t mind the sacrifice, try taking on a no-spend challenge where you cut out everything except the essentials such as housing, food and transportation. Alternatively, you could make temporary lifestyle changes to live more simply or sell valuables for immediate cash.
FAQ: About Saving Money
What Is the 30-day rule for saving money?
The 30-day rule says you should wait 30 days before deciding to buy something you don’t urgently need. In theory, this stops impulse purchases and gives you time to carefully think through the financial decision.
How can I save $1,000 fast?
To save $1,000 fast, consider options such as doing a no-spend challenge, finding a second job or selling items worth that amount. Aggressively cutting less important expenses in your budget or renting out an extra room during a busy season can also help.
What Is the 50/30/20 rule of money?
With the 50/30/20 rule of money, you use half of your monthly after-tax earnings for things you need, 30% for things you want and 20% for your savings, investment and debt payoff goals. It helps reduce overspending and ensures you regularly save a decent portion of your income.
How much should I be saving each month?
A common savings recommendation is 20% or more of what you earn each month. However, you’ll need to consider your goals, expenses and income to find what works for you.
*Data accurate at time of publication
