How to save money

Dr. Ahmet AKUSTA

·December 18, 2024

·12 min read

How to save money — Image Source: pexels

Saving money doesn’t have to feel overwhelming. It starts with small changes that can make a big difference. Did you know 34% of Americans have no savings at all? This often leads to financial stress and reliance on credit. Many people live paycheck to paycheck or underestimate how small expenses add up. By taking control of your spending habits and setting clear goals, you can break this cycle. Whether it’s cutting back on unnecessary subscriptions or planning for emergencies, learning how to save money can improve your financial stability and peace of mind.

Key Takeaways

Set clear money goals to save with a purpose. Split them into short-term and long-term goals for better focus.
Make a budget by listing your income and spending. Try methods like the 50/30/20 rule or zero-based budgeting to handle your money well.
Automate savings to stay consistent. Set up automatic transfers to your savings account so your money grows without extra work.
Cut unneeded costs by checking subscriptions and daily buys. Small changes can save a lot over time.
Earn more money with side jobs or learning new skills. Making more money helps you save and reach your goals faster.

Set Financial Goals to Save Money

Setting clear financial goals is the first step to building a solid savings plan. When you know what you're working toward, saving money becomes more purposeful and motivating. Here's how you can define and track your goals effectively.

Define Short-Term and Long-Term Goals

Start by dividing your goals into short-term and long-term categories. Short-term goals are things you want to achieve within a year. These could include:

Building an emergency fund
Paying off credit card debt
Saving for a vacation or wedding
Putting money aside for a big purchase, like a car down payment

Long-term goals, on the other hand, take several years to accomplish. These often focus on major life milestones, such as:

Identifying your retirement needs and starting a retirement fund
Saving for a house down payment
Investing in your child's college education

Balancing both types of goals is essential. Short-term goals give you quick wins and build momentum, while long-term goals ensure you're prepared for the future. To make progress, set a budget that allocates specific amounts toward each goal. Automating transfers into separate accounts for each savings goal can also help you stay consistent.

Track Progress with Tools and Milestones

Tracking your progress keeps you motivated and on course. Use tools like Simplifi or Monarch Money to monitor your budget and savings. These apps can help you set SMART (Specific, Measurable, Achievable, Relevant, Time-bound) goals and track key performance indicators (KPIs).

Breaking your financial journey into smaller milestones makes it less overwhelming. For example, if you're saving for a $10,000 house down payment, celebrate when you hit $2,500, $5,000, and so on. Each milestone gives you a sense of accomplishment and reinforces your commitment to saving.

By defining clear goals and tracking your progress, you'll find it easier to stay focused and motivated. Remember, every dollar saved brings you closer to achieving your dreams.

Budgeting for Saving Money Fast

Budgeting is one of the most effective ways to save money and take control of your finances. By understanding where your money goes and planning ahead, you can make smarter decisions and achieve your financial goals faster. Let’s break it down step by step.

Calculate Income and Expenses

The first step to creating a budget is knowing how much money you have coming in and going out. Start by listing all your sources of income, including your salary, side hustles, or any other earnings. Next, track your expenses. This includes fixed costs like rent, utilities, and insurance, as well as variable expenses like groceries, entertainment, and transportation.

Many people make common budgeting mistakes, such as overestimating their available funds or forgetting to plan for emergencies. To avoid these pitfalls, be realistic about your spending habits. Set aside money each month for unexpected expenses, like car repairs or medical bills. Don’t forget to include special occasions like birthdays or holidays in your budget. These small adjustments can prevent financial surprises and keep you on track.

Use Effective Budgeting Methods

Once you’ve calculated your income and expenses, it’s time to choose a budgeting method that works for you. Popular options include the 50/30/20 rule and zero-based budgeting.

The 50/30/20 rule is simple: allocate 50% of your income to needs, 30% to wants, and 20% to savings or debt repayment. This method is flexible and easy to follow but may not provide enough detail for close tracking.
Zero-based budgeting assigns every dollar a purpose, ensuring nothing goes unaccounted for. It’s great for detailed tracking and financial control but can feel rigid and time-consuming for beginners.

Pick a method that fits your lifestyle and financial goals. If one approach doesn’t work, don’t give up. Adjust and try another until you find the right fit.

Automate Your Savings

Automating your savings is a game-changer when it comes to saving money fast. Set up automatic transfers from your checking account to a savings account each payday. This ensures you save consistently without having to think about it.

Automation also helps you avoid the temptation to spend. By moving money out of your disposable income, you create a barrier that reduces impulsive purchases. Over time, your savings will grow, and you’ll benefit from compound interest, which accelerates your progress toward financial goals.

If you’re struggling to save, start small. Even $20 a week can add up over time. The key is consistency. By automating your savings, you make it easier to stick to your budget and reach your goals faster.

Reduce Expenses to Save Money

Saving money often starts with cutting back on unnecessary expenses. By making small adjustments to your spending habits, you can reduce monthly bills and free up funds for your financial goals. Let’s explore some practical ways to cut costs.

Cut Unnecessary Subscriptions

Take a closer look at your subscriptions. Are you paying for services you rarely use? Many people overlook these recurring charges, but canceling them can save you hundreds each year.

Dating websites: Canceling two subscriptions could save over £100 annually.
Health and lifestyle apps: Dropping just one can save at least £200 a year.
Gym memberships: If you’re not using it, canceling could save £300 or more annually.
Other subscriptions: From streaming services to magazines, cutting unused ones can save anywhere from less than £100 to over £1,000 a year.

Review your bank statements to identify subscriptions you’ve forgotten about. Canceling even a few can make a big difference in your budget.

Save on Daily Purchases

Everyday spending adds up quickly, but small changes can help you save money without sacrificing too much.

Create a shopping list before heading to the store to avoid impulse buys.
Look for sales and discounts, and try generic brands—they’re often just as good as name brands.
Buy in bulk for non-perishable items to reduce costs over time.
Use cashback or rewards credit cards for groceries, but always pay off the balance monthly.
Carpool or use public transportation to cut transportation costs.
Combine errands into one trip to save on gas.

If you’re a student, take advantage of student discounts wherever possible. Many stores and services offer exclusive deals that can help you stretch your budget further.

Lower Housing and Utility Costs

Housing and utilities are major expenses, but there are ways to reduce them without sacrificing comfort.

Improve energy efficiency at home. Seal air leaks around doors and windows to save an average of 11% on electricity costs.
Upgrade to energy-efficient appliances and use programmable thermostats to lower energy bills.
Consider downsizing your living space. Moving to a smaller home can reduce mortgage or rent payments, freeing up funds for other priorities.

Here’s a quick comparison of potential savings:

Strategy	Financial Benefit
Downsizing	Reduces mortgage or rent payments, freeing up funds.
Energy-efficient upgrades	Lowers energy bills significantly, saving money monthly.

By making these changes, you can reduce monthly bills and keep more money in your pocket.

Increase Income for Faster Savings

Boosting your income is one of the fastest ways to save money and reach your financial goals. While cutting expenses is important, increasing your earnings gives you more flexibility in your budget. Here are three practical ways to grow your income.

Start a Side Hustle

A side hustle can be a great way to earn extra cash while pursuing something you enjoy. Whether it’s freelancing, selling handmade products, or offering a service like tutoring, a side hustle can complement your primary income.

Think beyond just the money. A side hustle can help you gain valuable skills that enhance your career. For example, if you’re passionate about graphic design, freelancing can improve your portfolio and open doors to better job opportunities. Choose a side hustle that aligns with your long-term goals to create synergy between your main job and side activities.

If you’re serious about it, treat your side hustle like a business. Strategize and plan how to grow it over time. Who knows? It might even turn into a full-time venture someday.

Negotiate for Higher Pay

When was the last time you asked for a raise? Negotiating your salary can significantly impact your financial security and savings potential. Many people hesitate to negotiate, but it’s worth the effort.

Here’s how you can prepare:

Research industry salary benchmarks to understand your market value.
Align your compensation package with your personal and professional goals.
Use a collaborative approach during negotiations to highlight your value.

Negotiating effectively can lead to an average salary increase of $5,000. This extra income can go straight into your savings or help you pay off debt faster. Remember, being assertive and prepared makes all the difference.

Invest in Skills for Better Opportunities

Investing in yourself is one of the smartest financial decisions you can make. By learning new skills or earning certifications, you increase your chances of landing higher-paying jobs.

Start by identifying skills that are in demand in your industry. For example, learning coding, project management, or digital marketing can open doors to better opportunities. Many online platforms offer affordable courses, so you don’t have to break the bank to upskill.

Think of this as a long-term investment. The money you spend on education now can lead to higher income later, giving you more room in your budget to save money and achieve your goals.

By increasing your income through side hustles, salary negotiations, and skill development, you’ll have more resources to build your savings and secure your financial future.

Build Habits for Long-Term Savings

Building good habits is key to saving money over the long haul. By making small, consistent changes, you can create a lifestyle that supports your financial goals. Let’s dive into three habits that can help you stay on track.

Avoid Impulse Spending

Impulse spending can derail your budget faster than you think. It often happens because of emotional triggers or clever marketing tactics. Here’s how to manage it:

Emotions: Marketers use emotional appeals to make you buy things you don’t need. Pause before making a purchase and ask yourself if it aligns with your goals.
Social Influence: Buying to fit in or impress others can hurt your finances. Focus on what truly matters to you, not what others expect.
Cognitive Biases: Mental shortcuts, like the anchoring effect, can lead to poor decisions. For example, seeing a $100 item marked down to $50 might tempt you, even if you don’t need it.

A simple trick? Create a 24-hour rule for non-essential purchases. This gives you time to think and avoid regret later.

Save Bonuses and Windfalls

When you receive unexpected money, like a bonus or tax refund, it’s tempting to splurge. Instead, use it wisely to strengthen your financial future:

Max out contributions to accounts like 401(k)s or IRAs.
Allocate 10-30% to investments based on your goals.
Build an emergency fund to cover six months of expenses.
Pay off high-interest debt for guaranteed savings.
Treat yourself, but limit it to 5-10% of the windfall.

For example, if you get a $10,000 bonus, you could allocate $3,000 to debt repayment, $2,000 to savings, and $500 for fun. This balance ensures you enjoy the money while staying responsible.

Practice Frugality in Daily Life

Frugality doesn’t mean deprivation. It’s about making smarter choices to save money without sacrificing quality. Here are some ideas:

Shop during sales and use price-matching to stretch your grocery budget.
Drive a fuel-efficient car to cut gas costs.
Adopt a semi-vegetarian diet to save on meat expenses.
Use cashback credit cards for purchases and redeem points for travel or gifts.

The benefits of frugality go beyond saving money. It builds financial resilience, improves your credit, and even supports better health. For example, living within your means reduces stress and allows you to focus on what truly matters.

By avoiding impulse spending, saving windfalls wisely, and practicing frugality, you’ll create habits that support long-term financial success. These small changes add up, helping you achieve your goals and enjoy peace of mind.

Saving money doesn’t have to be complicated. Start by setting clear goals, creating a budget, and cutting unnecessary expenses. Boost your income with a side hustle or skill upgrade, and build habits like avoiding impulse buys. These small steps add up over time.

Why not start today? Pick one change—cancel a subscription, automate savings, or track your spending. You’ll feel more in control and see progress faster than you think. Remember, consistency is the secret. Stick with it, and you’ll achieve financial freedom before you know it!