THIS IS YOUR ULTIMATE GUIDE FOR HOW TO SAVE MONEY, NO MATTER WHAT YOUR CURRENT FINANCIAL CIRCUMSTANCES LOOK LIKE.
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Do you look at your bank account and wonder why it’s not, well, BIGGER? How to save money is top of mind for you; yet, at the end of the month, you don’t even come close to what you had hoped to set aside.
The cause can be any number of reasons — debt repayment, living paycheck to paycheck, a recent large purchase that wiped you out, handing your savings over to Amazon.com and companies that sell delicious-smelling (albeit expensive) candles…
Whatever the reason, here’s the question to ask yourself:
Is the amount of time you spend working to earn money reflected in your savings account balance?
You, me, and everyone else work hard for our paychecks. We leave our families, commute long distances away from home, put ourselves into uncomfortable situations…the least we can do for ourselves is to keep as much of our moolah as possible.
Chances are, you’ve earned a pretty penny in your lifetime. Unfortunately, not enough of it has been for keeps.
WHY YOU NEED TO SAVE MONEY
Figuring out how to save money, and actually stick it in the bank, is important for reasons far beyond numbers.
A healthy bank account gives you breathing room, stops you from going into debt from an emergency, and is the building block for being able to design your own life.
Whether you dream one day of working part-time, being a stay at home Mom or Dad (SAHM, SAHD), retiring early, starting up your own business, or traveling to all of those places on your Pinterest boards, savings will get you there (and interest earned on top of savings will get you there even faster!).
Let’s look at how to save money from a holistic angle – starting with maximizing your accounts to earn you more money, learning how to save money faster, saving money even when you’re living paycheck to paycheck, and how to protect your savings.
HOW TO SAVE MONEY FASTER – SET YOUR ACCOUNTS UP RIGHT
How to save money is as simple as spending less than you earn, then socking away the leftover into a mason jar.
But we’re looking to go wayyyy beyond that for you – you want to save the MOST amount of money you can, right?
Let’s give your savings vehicles (aka, your accounts, your system, etc.) an overhaul. If you set this up correctly, then all the money you’re about to funnel into it will earn you even more money than you could ever have done on your own.
For starters, you want to have a savings account to put your money in, not a regular checking account. While there are interest bearing checking accounts out there – a solid strategy to boost your overall interest earnings – you will not find a better rate in a checking account than you can in a savings account.
Aside from that, a checking account is easier to tap at the ATM, which makes it more likely you’ll spend the money.
Here’s what you want to do to set your savings system up for maximum earnings:
- Search for the Savings Account with the Highest Interest Rate: You’ll typically find the best interest rates in online banks, or banks that mostly operate digitally. That’s because there’s less overhead costs, which the bank can then pass the savings onto their customers. As of this writing, our savings account is with PurePoint Financial, who holds one of the top market rates of 1.90% APY (this was double the interest rate our last bank offered us).
- Look for a Bank Bonus Opening: Do a second search, where you look for opening bonuses for new accounts. Here’s how to figure out if a bank opening bonus is worth pursuing.
- Set Up Automation: Get the paperwork done to associate your checking account to your savings account for easy transfers, and you can even set up a direct deposit from your HR department straight to your savings account (ask your HR department if they can split your direct deposits between two accounts – checking and savings account).
Let’s talk a bit more about automation, as it’s a core strategy to any sound money savings plan.
HOW TO AUTOMATE YOUR SAVINGS
Automating your savings strategy is the surefire way to actually go through with it.
Think about it: if you had to manually send $100 to your vacation fund, and $450 to your retirement account each month…would you actually, consistently do so?
Probably not – and you’re not alone. Most Americans wouldn’t!
Instead, you need to automate your savings. There are three ways to automate your savings:
- Automatic Withdrawals: Setting up automatic transfers each month from your checking to your saving account.
- Direct Deposits to Savings Account: Setting up automatic direct deposits from your paycheck to your savings account (many HR departments will let you split your paycheck between two different accounts, using percentages that you indicate). Note that you can also have any tax return from the IRS directly deposited into your savings account, instead of into your checking account.
- Automatic Savings App: These apps are one of the best new tools on the market to get more of your money into your actual savings account because it takes it out in little increments – say $5.00 here, $22.00 there – so that you don’t really notice. What you will notice? Is the money accumulation!
Automatic savings apps are your new best friend. I’ve been using one for two years now, and it’s automatically sent $4,215.37 to my savings account in hardly-noticeable increments such as $5.00, and $17.32!
In my world, that money equals two trips to Cozumel, Mexico (one of which, we took for our 5-year anniversary!).
Here’s my favorite automatic savings app to check out for how to save money consistently:
- Digit.co: This is the one I’ve happily used for two years now. What I love about this service is you can communicate what you want through text messages to it. If I want to withdraw money from my savings account with them and send it back to my checking, it takes just one day and I can text the command “Withdraw $XXX.XX” to get it done. You can also text things like, “save more”, or “save less”, or “pause saving”. How easy! This service is free for 100 days, then it’s $2.99/month. They also pay a small amount of interest (1% annual bonus, paid out every three months), and you can transfer the money to your optimized savings account you set up earlier at any time.
Now that we’ve discussed the logistics of your savings system, let’s talk about where you want to funnel all of your money to.
SETTING UP BOTH SHORT-TERM AND LONG-TERM SAVINGS GOALS
So, what exactly are you saving money for?
Great question. And answering it correctly means securing your family’s future, living the life of your dreams, and giving your money such a clear purpose that you can’t help by try to save more of it.
The first thing you need to do – but may not want to do – is cover your savings bases.
You see, while saving up for that trip to Iceland is way sexier than saving for an emergency fund, the fact is, the emergency fund is what’s going to keep your financial independence. So, Iceland (for now) might need to wait.
Here’s a way to prioritize how to save money from most important, to less important:
- Emergency Fund: The fact is, most Americans are just one $400 emergency away from landing on their parents’ couch (or racking up heaps of credit card debt to cover themselves). A good place to start your savings journey is establishing a proper emergency fund (aka, the Oh sh*t fund – because usually you’re saying or thinking that if you have to tap it). This will put a healthy buffer between you and debt. Fortunately for you, taking the time to save up for an emergency savings fund isn’t as annoying as you think.
- Retirement Investment Account: If you’re banking on Uncle Sam paying for your cushy retirement via the money you’ve been contributing into the social security system, then you’re in for a disappointing latter half of your life. In fact, on the last Social Security statement I looked at, the front cover page said, “…The Social Security Board of Trustees now estimates that based on current law, in 2037, the Trust Funds will be depleted. Because people are living longer and the birth rate is low, the ratio of workers to beneficiaries is failing. Therefore, the taxes that are paid by workers will not be enough to pay the full benefit amounts scheduled.” That, my friend, is a direct quote from the government.
- Take Yourself on a Money Walkabout: The fact is, many “emergencies” aren’t really emergencies at all. Everyone has appliances, cars, and other things in their life that, well, are going to kick the bucket in the coming months and years. I suggest you take yourself on a walkabout in your life (mentally) and take an inventory of where your stuff is. Are your washer and dryer about to reach their 20th anniversary? Have you cleared 200,000 miles on your beater car yet? Make a list of the things you rely on that you think will need to be replaced in the next 1-3 years.
Those are the two big bases to cover, savings-wise. Next, let’s talk about your other savings goals (hint: there are some fun ones, here!).
- Targeted Savings Goals: This is where things get fun (though, for money geeks like me, I find emergency funds and retirement savings fun as well!). You’ll want to make a list of all the things and experiences you want to save up for – travel, down payment on a home, a family gaming system, landscaping, home renovation, etc. Don’t limit yourself on your brainstorm. You’ll then want to figure out which goal or 2-3 goals you should save up for first. Hint: the fewer number of goals you save up for at one time, the faster you’ll reach them. You can use this nifty money goal setting worksheet I created for kids (works for adults, too!) – it’ll help you visualize what to save for first. Or, here’s 4 ways to figure out which savings goal to go after first.
- Kid’s Savings Accounts: You’re modeling good savings behavior with your kids (especially if you’re implementing what you learn in this guide)…so the next logical step is to setting up bank account for baby (even if “baby” is now wearing braces!). I cover this entire subject much more thoroughly over at MoneyProdigy.com, where I’m working on solving how to teach kids about money.
You’ve now got your short-term and your long-term savings goals to start saving up for. The next question is, how do you set yourself up for more savings success so that you’re able to do what I like to call “Save Beyond Your Means”?
CULTIVATE A HIGH-SAVER MENTALITY
People who are considered high-savers – saving upwards of 50% of their income – think differently than other people.
I’ve spent years not only thinking this way myself, but also studying this difference between those with cushy savings accounts and those with anemic ones.
I’m going to share with you 7 high-saver mentalities that will turbo-boost your personal savings rate.
- Use Spending Filters when making purchases, to stop buyers remorse
- Put Saving Rules into Place
- Get rid of their scarcity mentality
- Ban the words, “I can’t afford it”
- Believe in this Savings Mantra, “it’s not about what you earn, it’s what you keep”
- Have Found the Savings Sweet Spot of both suppressing costs AND earning more
- Add a boat load to their savings account each year, even if they’re living paycheck to paycheck
Next up? How to free up cash flow so that you can increase your savings faster.
MONEY SAVING TIPS – HOW TO SAVE MONEY EVEN IF YOU’RE LIVING PAYCHECK TO PAYCHECK
What will free up more of your money for savings? Frugality [and not the boring kind where you’re stuck on the couch all month, eating leftovers you’d rather not have eaten the first time ‘round just to save a few measly bucks].
I want to show people the true muscle of frugality, both in good times, and in bad times. Frugality is not just a tool to use when you hit hard times and abandon the moment things turn around (what the majority of folks do). The people who practice smart frugality in the good times are the ones who will evolve financially from paying off debt all the way through to designing their lives.
Isn’t that what you want to do?
I’ve got a ton of resources to get more of your hard-earned money from your paycheck into your savings account (even if you’re living paycheck to paycheck):
- Fight Property Taxes: I did a property tax appeal for a total savings of $612.
- How to drastically cut expenses with these 4 phone call scripts (we saved a total of $1,089!).
- Get rewarded in CASH for searching the internet: Since joining Swagbucks in 2009, this has added $2,297 into My PayPal Account.
- When going down your konmari method checklist, be sure to take the 30-day Konmari Cashout Challenge. I went through it and personally earned $101 on stuff just sitting around our home.
- How to save on Netflix (for us, that’s $155.76/year, while still getting the movies/series we want to watch!)
- Enter the Low-Cost, but Unlimited-Everything Cell Phone Market: I ditched Verizon several years ago and instead got a free iPhone 5 + unlimited everything for just $39.99/month after taxes. This saved me $410.76 annually.
- Score tons of free products playing the Drugstore Game (even without using manufacturer coupons): This has yielded us $3,000+ in free products from CVS and Walgreens.
- Have you heard of travel hacking, or how to get a free airline ticket)?: Try it! We did this for a Thanksgiving trip to Michigan, and saved $1,281.
- Looking for how to pay off your mortgage faster? We refinanced from 30 years to 15, for a total savings of $103,000 over the course of the loan! Click through to learn several ways to save on mortgage costs. Here’s how to save on rent (without having to move).
- Decrease Your Insurance Premiums: We’ve saved thousands with these strategies.
- Buy from Group Social Buying sites. I remember when a coworker of mine came up to me to describe this new social buying concept she had heard about on the news. Social buying websites offer fantastic deals from 30% savings and higher (50% is typical) at venues of all sorts (travel, restaurants, entertainment, healing/health/massage, exercise/yoga, etc.). The idea is that a local or national company signs on to run a campaign through these websites. The social buying site sells a limited number of certificates or coupons in a 24-hour or several day time period and if the set minimum number of people purchases the deal then the deal is official. The social buying site gets a large cut of the money and the business receives a percentage as well as a lot of exposure. Sites include Groupon.com, and LivingSocial.com.
- Automate an Additional $30 a Month to Your Retirement Savings: Hopefully you are already saving a sizable amount of your income into a retirement account. How about adding just $30 per month more? Over 30 years, the estimated amount you will have saved is $34,313 from $10,800 out of your own pocket. If you have just 15 years until retirement, you will have saved $9,242 for $5,400 out of your own pocket. It sounds like a nice return on a small amount of effort and sacrifice each month, especially if you automate the savings and forget it.
- Move Your Retirement Fund to Something with Lower Fees: It’s a very good idea to take an afternoon and figure out the amount of fees that are eating away at your nest egg investment portfolio each year (hint: click here for a free way to do this very quickly). If they are close to or higher than 1% of your portfolio, you should definitely think about moving them to a fund with lower fees. This is because 1%+ may not seem very much when you don’t have much in a retirement account. However, over time, the 1%+ turns into a huge gap in your nest egg. Let’s go through an example with this calculator: if you have a retirement fund of $60,000 currently, and you add $5500 per year, between 0.2% and 2% in fees can equate to a $105,598.69 difference over 20 years. Wow.
I caution against working your life away to meet your spending appetite. Instead, curb your spending appetite and live a fuller life. Over-consumption steals money + time + energy from yourself.
SIGN UP FOR SAVINGS MATCH PROGRAMS
Alright. You’re doing everything you can to build your savings and funnel it into the short-term and long-term savings goals that will not only meet your family’s needs but will add immeasurably to your quality of life.
But did you know that there are savings match programs out there that will help your savings grow even more?
- Employer-Sponsored Savings Match Program (such as your 401(k) match).
- Savings Match Programs: Individual Development Accounts, Saver’s Tax Credit, Saver Life Program, etc.
- If you’re wondering “how can I save for retirement”, then check out this retirement “savings match program” of sorts I’ve put together.
- I’ve got creative ways to pay off student loans where your debt payments are matched in some way or paid for you (so that you can funnel money to savings instead).
As you build your savings, you will want to look for low-cost ways to invest your money and grow its power to fuel your dreams. Or perhaps you have already begun to do this. Personal Capital is a free service that takes a snapshot of all of your assets and lets you know cool and super-useful things like how much in fees are getting sucked out of your portfolio, and if you are well-diversified (heck, even knowing what your portfolio is invested in for those of us who don’t keep track of mutual funds and bundled 401(k) packages offered at work).
All of this is in preparation for creating more time, energy, and space in your life for the good things to come.