Sometimes the hardest part of saving money is getting started. This step-by-step guide on saving money can help you develop a simple and realistic strategy so you can save for all of your short- and long-term savings goals.

Record your expenses

The first step to start saving money is to determine how much you spend. Track all your expenses; that means every cup of coffee, household item and cash tip, as well as monthly recurring bills. Record your expenses the way it’s easiest for you, with paper and pencil, a simple spreadsheet, or a free online expense tracker or app. Once you have the information, organize the numbers by categories, such as gas, grocery shopping, and mortgage, and get the total for each. Use your bank and credit card statements to make sure you’ve included everything.

Include the savings in your budget

Once you know how much you spend in a month, you can start creating a budget. Your budget should reflect what your expenses are compared to your income, so you can plan your spending and limit overspending. Be sure to factor in expenses that occur regularly, but not every month, such as car maintenance. Include a savings category in your budget, and try to save an amount you’re comfortable with from the start. Plan to increase your savings over time until they represent 15 to 20 percent of your income.

Find ways to cut your expenses

If you can’t save as much as you’d like, it may be time to cut back. Identify non-essential categories, like entertainment and eating out, where you can spend less. Also, look for ways to save on your fixed monthly expenses, like your car insurance or cell phone plan. Here are other ideas for cutting everyday expenses:

Find free activities

Use resources, such as community event listings, to find free or low-cost entertainment events.

Check your recurring charges

Cancel unused subscriptions and memberships, especially ones that renew automatically.

Compare the cost of eating out to cooking at home

Plan to eat at home most of the time and look for deals at local restaurants for the nights you want to eat out.

Wait before buying

When you’re tempted to make a non-essential purchase, wait a few days. You may realize that the item is something you want but don’t need, and you could set up a savings plan to buy it.

Set savings goals

One of the best ways to save money is to set a goal. Start by thinking about what you might want to save for, both in the short term (one to three years) and long term (four years or more). Then decide how much money you will need and how long it might take you to save it.

Common short-term goals:  an emergency fund (three to nine months of living expenses), a vacation, or a down payment on a car

Common long-term goals: a down payment on a home or remodeling project, your child’s education, or retirement

Quick tip

Set a small, achievable, short-term goal for something that’s fun and not part of your monthly budget, like a new smartphone or holiday gifts. Achieving smaller goals, and enjoying the nice reward you’ve saved for, can give you a psychological boost that makes the rewarding feeling of saving more immediate and strengthens the habit.

Set your financial priorities

After your expenses and income, your goals are likely to have the biggest impact on how you allocate your savings. For example, if you know you’ll have to trade in your car soon, you could start saving money now to do it. Make sure you keep long-term goals in mind; It’s important that planning for retirement doesn’t take a backseat to short-term needs. Knowing how to prioritize your savings goals can give you a clear idea of ​​how to allocate your savings.

Choose the right tools

There are many savings and investment accounts suitable for short-term and long-term goals, so you don’t have to choose just one. Carefully review all options and consider minimum balances, fees, interest rates, risks, and the length of time you’ll need the money to choose the mix that best saves for your goals.

Short-term goals

If you will need the money soon or want to access it quickly, consider using FDIC-insured deposit accounts:

  • a savings account
  • A certificate of deposit (CD), which holds your money at a rate typically higher than a savings account for a fixed period of time

Long term goals

If you are saving for retirement or your child’s education, consider:

  • Individual Retirement Accounts (IRAs) or FDIC-insured 529 plans, which are tax-efficient savings accounts
  • Securities, such as stocks or mutual funds. These investment products are available through investment accounts with a broker-dealer1

Save automatically

Almost all banks offer automated transfers between your checking and savings accounts. You can choose when, how much and where to transfer money, and even split your direct deposit so that a portion of each paycheck goes directly into your savings account.

Watch your savings grow

Review your budget and see your progress each month. This will not only help you stick to your personal savings plan, but also quickly identify and correct any problems. Knowing how to save money can even motivate you to find more ways to save and reach your goals faster. 

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