Setting a savings goal and planning how to reach it can initially seem daunting – especially if you don’t feel financially literate. However, with the proper financial knowledge and a solid plan, you can be empowered to make wise financial decisions that will help you achieve your savings goals, even on a tight budget.
Learn how to save money fast by following the tips and financial strategies below.
Track your spending and expenses
Before successfully saving money, you need to know how much you have and where you’re currently spending it. That means tracking your spending and expenses for several months.
First, note your monthly net income, or the amount you bring home each month minus taxes and other deductions. If your income varies, check your bank statements and note how much you made over the last 6 to 12 months, then calculate the average.
Depending on your preferences, you can track your monthly expenses using a spreadsheet or a budgeting app. Keep track of all your everyday spending, including monthly and discretionary bills. Avoid making significant changes to your spending while tracking everything because that will result in inaccurate data.
Set realistic savings goals
Once you know your spending habits, you can set your savings goals. Set achievable goals; making a goal of saving $2,000 a month when you only bring home $4,000 is likely to fail. Instead, think about what you want to achieve with your short-term and long-term savings. Use a savings goal calculator to help determine how much you can save each month.
Short-term savings
Your savings goals are short-term if you plan to save for something within the next one to five years. Common short-term savings goals include:
- Building an emergency fund equal to three to nine months of living expenses
- Saving for a car down payment
- Saving for a vacation
- Planning a wedding or other significant event
Mid- and long-term savings
Savings goals are considered mid- or long-term if you’re saving for something in more than five years. Some potential long-term savings goals include:
- Saving for a house down payment
- Saving for a major home remodeling project
- Saving for your children’s education
- Paying off a student loan
- Saving for retirement
Create a budget
After you’ve written down your savings goals, it’s time to create a budget. Be realistic when making a budget. If your financial plan is too restrictive, you’re less likely to stick to it. There are several budgeting methods to consider, including the 50/30/20, envelope, and zero-based budgeting methods.
Prioritize saving
No matter which budget method you choose, you should prioritize saving. Here’s how each budget method treats savings.
- The 50/30/20 method allocates 20% of your income to savings and debt payments.
- The envelope method allocates a set amount for spending in various categories, and leftover money can go toward savings.
- Zero-based budgeting is an intentional way of tracking your spending by assigning a purpose to every dollar, including savings.
Of course, if you’re working on how to save money fast on a low-income budget, you can adjust your spending plan (temporarily or permanently) to meet those goals faster. For example, you could cut back on eating out for six months and put that money toward your savings goals instead.
Allocate funds
When you create your budget, allocate funds for different savings goals. Consider which savings goals are the most important. For example, if your car is on its last legs and needs to be replaced soon, bump up your savings for a down payment. If your emergency fund won’t cover at least three months of living expenses, prioritize putting your money toward this account. If you want to become a homeowner, look into how to save money for a house down payment.
While short-term savings goals are important, don’t let retirement savings take a back seat to these short-term goals. If your employer offers a match on your 401(k) plan, aim to save the maximum amount to get the full employer match to build your retirement plan. And if you have a Roth IRA, aim to contribute as close to the maximum annual amount as possible. Speak with financial advisors to determine whether you’re on track for your retirement needs.
Reduce unnecessary spending
One of the most successful savings strategies is to reduce spending on unnecessary expenses. That doesn’t mean you should cut out all extracurricular activities, but you can identify areas where you can cut back without giving up your monthly friend dates at your favorite taco joint.
Identify areas where you can save
When tracking your spending over a few months, look for areas where you can save. For example, you might spend more on monthly subscriptions than you think. Or you may be spending a lot more on dining out than expected.
To save money, consider which subscriptions you can cancel and put that saved money toward savings instead. And look up recipes you can cook instead of dining out (you can even invite friends over to make it feel more special). Think about how to save money on groceries. Can you take advantage of sales and buy in bulk to save money? Finally, search for free or low-cost activities in your area to socialize with your friends and neighbors without spending much money.
Curb impulse purchases
An impulse purchase here and there might seem innocent enough, but these purchases can add up to a lot of money over time. If an impulse purchase tempts you, hit the pause button.
Give yourself 30 days to consider the purchase and decide whether it’s something you need or whether you had a narrow escape from being the owner of another costume for your dog.
Restricting online shopping can also help you stop spending money on impulse purchases. Remove your contact and payment information from payment platforms, forcing you to enter this information every time you make a purchase. The extra work involved can give you pause to consider whether you need that pair of impractical shoes.
Address debt management
Managing your debt can help you save more money in the long term. Making the minimum monthly payment will prevent late fees and other penalties, but you’ll accrue interest and it’ll be more challenging to get out of debt. Here’s how to tackle your debt the smart way.
High-interest liabilities
If you have high-interest liabilities (like credit card debt), plan to pay them off quickly. Carrying a balance on a high-interest card or loan means you’ll continue accruing interest and the amount you owe will keep climbing.
Making the minimum payment alone each month won’t reduce your debt. Instead, make extra payments each month if possible to slowly chip away at that high-interest debt.
Debt consolidation
Debt consolidation loans can help you lower your interest rate while lumping your debt payments into one monthly sum. This can help you pay off your debt faster so you can focus on saving more money.
Lenders will consider your credit score when reviewing your application for a debt consolidation loan. If your credit score falls in the “poor” or “fair” range, you might not qualify for this type of loan. FICO®1 Score ranges2 are:
- Poor: Less than 580
- Fair: 580–669
- Good: 670–739
- Very good: 740–799
- Exceptional: 800 and up
If your credit score is 669 or lower, boost your score to increase your chances of qualifying for a debt consolidation loan.
Automate your savings
The easiest way to save money is to automate the process. After you’ve tracked your spending and made a realistic monthly budget, you can start to build your savings automatically.
High-yield savings accounts
A high-yield savings account usually has a significantly higher annual percentage yield (APY) than a traditional savings account. Currently, regular savings accounts have rates of 0.41%,3 but you can usually find much higher rates with high-yield savings accounts. Choosing a high-yield savings account lets you maximize your returns on your savings.
Automatic transfers
Automate your savings by setting up automatic transfers between your checking and savings accounts. Aim to transfer the money on the same day you’re paid so you’re not tempted to spend rather than save the money. If the funds are only in your account for a day or less, you won’t miss them once they’ve moved to savings.
Remain accountable and track your progress to reach your goals
The key to saving money is to stay accountable and track your progress. Once you know how much money you’re making and spending each month, you can identify ways to cut back and maximize your savings. Keeping track of your progress as your savings grow can help motivate you to keep going until you reach your financial goals. And once you’ve reached it, identify a new savings goal and start working toward it.
Want to find more ways to save? Learn the best ways to save money quickly and reach your goals sooner.
How to save money FAQS
How much money should I save each month?
The amount of money you should save each month depends on your income and expenses. However, if you follow the 50/30/20 budgeting method, 20% of your take-home pay should go toward savings. You can save more or less than that amount each month depending on your financial health.
What are the most common ways people waste money?
Some common money-wasters include unnecessary bank fees, debt and credit card interest and fees, extended warranties, and uneaten food. Audit your finances to see whether you’re paying excessive fees, skip that extended warranty when you replace your fridge, and only buy food you know you’ll eat.
Should I have an emergency fund?
It’s a good idea for everyone to have an emergency fund. This money is meant to be available for unexpected costs, like a house or car repair or a sudden loss of income. The amount of money you should have in your emergency fund depends on your lifestyle; a single person living in a low-cost area will need to save less than a family of four living in a major metropolitan area.