Most people want to save more money, but without a solid plan and good habits, it’s easy to fall short of your financial goals. Life interferes, and money slips through the cracks. Before you know it, the end of the month has arrived, and you’re no closer to saving than when you started.
By focusing on small wins, making automatic deposits, and resisting the temptation to “borrow” from yourself, you can get on the path to financial stability. Here’s how to go about establishing habits of saving more money so that it becomes second nature.
Celebrate the Small Savings
When you’re just starting out with saving, it’s easy to discount your efforts. Even if you’re only able to set aside $5, focus on the fact that you’re saving something.
Give yourself permission to start slowly; if you save $5 every week, you’ll have $260 at the end of the year. As long as you’re moving in the right direction, you’re focused on what really matters: establishing the habit of saving.
If you’re not sure where to start or how much you should be putting into your savings account, here’s a method to try: Start by saving 1% of your monthly income, and increase that by 1% each month.
Set Up Automatic Transfers
Setting up automatic transfers from your checking account to your savings account can get you started saving money without thinking about it—assuming you have a budget in place and know your expenses and savings goals.
If your checking and savings accounts are at the same bank, that will be easier to do. You simply open the number of savings accounts you need for your different goals, and then set up automatic monthly (or weekly) transfers from your checking to your savings.
Using the same bank for checking and savings may also allow you to divide your direct-deposited paycheck. You can direct most of your paycheck to your checking account and deposit a percentage or a set dollar amount into your savings. You’re much less likely to miss that amount if it comes straight out of your paycheck.
Sometimes having separate banks for each account is a good thing, because you're less likely to transfer money out of your savings due to the hassle.
Savings Account Tips and Tricks
For some people, the best way to save is to have short- and long-term goals. Ideally, you’ll have three to six months' worth of living expenses set aside for emergencies.
Resist the temptation to dip into your emergency fund, and treat your savings accounts as off-limits. You can budget part of your income into short-term savings for specific goals, like a vacation, and into long-term savings for big-picture items, like a down payment on a new home.
Be disciplined about not making withdrawals unless it’s a life-or-death situation. Some banks apply penalty fees if you go over a certain number of withdrawals from a savings account in a given period, which is an excellent disincentive to withdraw funds.
While some savings accounts come with debit cards for easy withdrawals, you should avoid using them. You want to make it harder to withdraw from your savings, not easier.
Question All of Your Purchases
Make sure your purchases are in line with what you want in life. If you know that a vacation is more important to you than packages of your favorite snacks, it might be time to cut back on the junk food in favor of saving money on your grocery bill—money that can be put toward your vacation fund.
Whatever your vices are, the point is to stop buying things thoughtlessly. Ask yourself whether your spending is bringing you any happiness or bringing you closer to your goals.
If it’s not a necessity, like food, water, and shelter, and it’s not making you any happier or helping you, cut it.
Tips for Deciding on Purchases
One of the most straightforward ways to decide on a purchase is to determine how many hours of work it will take you to afford it. For example, if you earn $25 per hour, and you want to buy a $200 purse, you should think about whether that purse is worth eight hours of your life.
It also helps to set a grace period on purchases before making them. If something costs more than $50, give yourself a day to think about it. After 24 hours, you might find you don’t really want it as much as you thought.
A quick gut-check can help you avoid buyer’s remorse, too. Ask yourself whether you want the $200 purse more than your biggest savings goal; if not, walk away.
The goal is simple: Become a mindful consumer instead of a mindless one, and you’ll likely discover that saving is easier than you thought.
Budget for Your Savings
One common reason so many people make it to the end of the month and wonder where all their money went is that they don’t account for any extra expenditures. Don’t make this mistake.
Instead, take a look at your expense,s and see whether you’re spending more or less than your projected amount. You should be keeping track of how much you think you’ll spend during the month and how much you actually spend. The difference should go into savings.
If your budget says you should have money left over, and the problem is that you’re spending it before it can be saved, this method will help. Estimate your savings, and work that into your automatic transfers.
You can also work backward. Start with your salary, and subtract all of your expenses from it. If there is anything left, direct the remainder of it somewhere to avoid spending it.
Try the Anti-Budget
Not all strategies work for everyone, of course; not everyone is a natural saver, and not everyone loves budgets or spreadsheets.
If you know that you'll get bored or tired of meticulously tracking your expenditures, there’s another method you might want to try, sometimes known as the "anti-budget." You simply pull your savings from the top and spend the rest. There are no budget categories to keep track of.
All you need to know is how much you can afford to save each month. You shouldn’t try to save so much that your checking account balance is $0 before you can pay the bills, but once you find a suitable amount—one good rule of thumb is to save 20% of your income—set up an automatic transfer at the beginning of the month so that your savings are put aside first.
Keep Your Goals Realistic
Saving money often means making sacrifices, and it can wear you down after a while. If your self-imposed restrictions on spending are too strict, you may be setting yourself up for failure. It’s like going on a really strict diet; if you deny yourself for too long, you may snap and undo all of your good work.
Set up an occasional reward for yourself. For instance, if you have a long-term goal of saving $10,000, and that means giving up that daily latte and your monthly happy hour with friends, set mini-goals along the way. Once you hit $2,000, reward yourself with a latte, or visit happy hour for the first round of drinks.
There’s no reason that saving money has to be a completely miserable experience, and by giving yourself small rewards, you’ll reinforce the idea that you’re doing something that will, quite literally, pay off in the end.