Learning how to start saving money is more complicated than opening a savings account and making your first deposit. You have to create new routines, find money in your budget, and possibly increase your income.
Saving is how you go on your dream vacation, prepare for emergencies, and plan out how to retire.
The reality is that you know you need to save money, but learning how is the hard part.
Trust me, we’ve all been there.
The advice in this article will help you start putting more money in the bank by addressing some of the hardest parts about saving. I’ll also explain when to focus on debt over savings, how automated savings apps can help, and why you need to pay yourself first.
9 tips that will teach you how to start saving money
1. Set yourself up for success
Several months ago when I was getting my hair cut, I overheard a conversation between the stylist and client next to me. The stylist was explaining how she had no savings and a ton of debt and that she was frustrated that it was taking so long to see any real progress.
She said she would get a little bit ahead and almost immediately fall back to where she started.
Stories like this are incredibly common. You create a big goal of paying off all your debt or saving $20,000, and then feel like you never move forward. Some people get so frustrated with a lack of progress that they essentially give up.
Here’s what you have to remember: any progress is good progress.
Even if you do fall behind, the fact that you moved forward is huge. Learning how to start saving money isn’t easy, and it doesn’t happen overnight – remember this from the beginning.
Setting smaller goals can alleviate some of this frustration. Here are some milestones you can celebrate:
- Saving your first $100
- Saving money for two weeks in a row
- Hitting $1,000 in savings
- Successfully completing a no-spend challenge
Your celebration can be a nice but cheap bottle of wine, a latte from your favorite coffee shop, or just quietly acknowledging that you hit one of your goals.
2. Budget for savings
A budget is a plan for how you spend and save your money, and it can help you with the logistics of saving money. You essentially create a line item in your budget for savings and then pay yourself like it’s a bill.
Your savings should be treated like the rest of your bills – you pay it on time, every month. You may have to prioritize savings over some of your other expenses, but budgeting for it helps you create a monthly savings habit.
Here’s how to create a budget for savings:
- Start tracking your income and expenses. This tells you how much money is flowing in and out each month. You can track everything via bank and credit card statements, keep a spreadsheet, or use a budgeting app.
- Make a list of your debts. Identify each of your debts, including how much you owe, when payments are due, interest rates, and minimum monthly payments. The kind of debt you have affects your ability to save (more on this further down).
- Determine your savings goals. You can save for emergencies, vacations, a down payment on a house, retirement, etc. Then you can break those large goals down into smaller monthly savings goals.
- Organize and add up your expenses. After tracking your expenses for a month, organize them into different categories – housing, food, entertainment, utilities, etc.
- Finalize your budget. This is where you balance everything together and set spending limits for yourself to make it possible for you to meet monthly savings goals. Strategies like zero-based budgeting and the 50/30/20 rule provide a framework for creating a functional and realistic budget.
- Check in on your budget. Budgets are fluid. That means they should be adjusted if they aren’t working and if you go through any major life changes.
For help sticking to your budget, check out Start Sticking to a Budget | 29 Tips for Smarter Spending and More Savings and 19 Budgeting Tips to Help You Take Control of Your Money.
3. Cut your spending to find savings
Most people will need to adjust their spending if they want to learn how to start saving money. That’s the reality.
Start by prioritizing your expenses based on necessity. When you get to expenses that are classified as wants – things like going out to eat, stopping at the coffee shop in the morning, designer clothes, travel, etc. – consider how those affect your ability to save money.
A realistic budget should include some “fun money,” but most people will need to make some hard decisions and pull back on spending.
Fortunately, there are also some really easy ways to start cutting your spending:
- Find a less expensive alternative to cable: There are more streaming options than ever, and there’s no reason to spend $100+ each month on cable. There are options for sports lovers, premium channel add-ons, and ways to get live TV.
- Negotiate for a lower car insurance payment: Call your car insurance company and see if there are any discounts you can take advantage of or shop around for a more affordable option.
- Spend less on cell service: You can find cheap cell phone plans starting at $15/month and up to $40/month for unlimited data.
- Meal plan before you grocery shop: A meal plan helps you spend less at the grocery store and have better meals to eat at home.
Read more at 36 Ways to Save Money Fast.
4. Increase your income
If you want to learn how to save money, the reality is that cutting your spending will only go so far. The other thing is that frugality is hard.
I practiced extreme frugality to pay off my student loan debt, and if I could go back and do things differently, I would have focused on increasing my income, too. The combination of decreased spending and increased income only expedites your savings goals.
You can sell your stuff online, deliver groceries, start freelancing – there are so many legitimate ways to make extra money.
I recommend looking for side hustles that are flexible and pay well for the work you’re doing. My favorite way to make extra money (it’s how I supplemented my income after quitting my teaching job to run this site full time) is running Facebook ads for local businesses.
It takes around 2-3 hours per week to manage Facebook ads for one client, and ads clients are worth about $1,000/month. I even have a course that teaches people how to get started if you’re interested in learning more – check out the Facebook Side Hustle Course.
5. Save for emergencies
Remember the hairstylist I mentioned in the first tip? One of the savings goals she mentioned was fully funding her emergency fund. I was so happy to hear her bring up emergency funds because they prevent you from taking on debt, which inevitably helps you start saving money.
See, an emergency fund is money you save specifically for unexpected expenses, like:
- Unexpected car repair
- Your roof starts leaking
- The AC goes out in the middle of the summer
- Major medical expense
- You lose your job or hours get cut
Without an emergency fund, credit cards or personal loans look like the only way through those situations. Some people even borrow from retirement savings, like a 401(k) loan or withdraw from other investments.
Taking on debt makes it harder for you to save in the future, and borrowing from retirement savings negates the long-term effects of compound interest. An emergency fund protects your short and long-term finances.
It’s recommended that you aim for saving 3-6 months' worth of expenses in your emergency fund, but even $500 allocated for emergencies can be a big help.
Keep your emergency savings in a separate bank account, like a high-interest rate savings account or money market account with check-writing privileges. This keeps it safe from the rest of your spending while accessible enough for when you need it.
6. Pay yourself first
I’ve already explained that to start saving money, you need to treat savings like it’s a bill you pay every single month. But here’s the secret to making that happen: pay yourself first.
Paying yourself first means that you put money in savings as soon as you get your paycheck. Don’t wait until you’ve paid the rest of your bills; do it first.
This rule teaches you how to start saving money for a few reasons:
- You are creating a habit of prioritizing your savings
- You learn to adjust the rest of your monthly spending
- By saving money first, you are teaching yourself that your future is the most important thing
That last one is probably the most important. It’s really easy to overlook or ignore your future with everything that you have going on in your life, but your future happiness and security is why you’re working so hard to build savings.
7. Take advantage of windfalls
If you find yourself with a large chunk of money – work bonus, inheritance, large tax refund, birthday money, etc. – stick it in your savings as quickly as possible.
You can still spend a little of that money on yourself if you want, but saving as much of your windfall as possible will help you build momentum. With a big boost, your savings balance suddenly balloons and starts looking like something really substantial. That’s a great feeling, and it will motivate you to keep saving.
Saving small amounts of money each month is awesome, but it can take a while before it looks like you’ve made much progress. Remember, any progress is good!
Saving your windfall can actually motivate you to keep saving those small amounts of money because you’ll feel like you have something worth protecting.
8. Automate your savings
The entire savings process gets easier if you automate it, and it’s really easy to get started.
Start by taking advantage of direct depositing your paycheck into more than one place. Most programs let you split your deposit into four ways. Some can go in your checking account for regular bills, some towards your emergency fund, and some for other savings (like sinking funds or miscellaneous savings).
Direct deposit is a good way to build savings because it’s paying yourself first.
There are also automated savings apps that give you a few different ways to save:
- Digit uses sophisticated algorithms to learn your spending habits, then moving the perfect amount of money into a savings account for you. It will let you set multiple savings goals and offers overdraft protection.
- You can link a checking account to Qapital, and it will round up transactions to the next dollar amount and save the difference for you. You can also turn on over 200 IFTT (if this, then this) triggers to help you save more.
- Twine is a savings app for you and a partner to save together. You create savings goals, set up automatic deposits, and track your progress together.
9. Know when you should pay off debt or save money
Saving money and paying off debt are both really important things to do with your money, but which one do you do first?
How you prioritize your debt and savings depends on the kind of debt you have, but it also depends on what your goals are.
Consumer credit card debt and payday loans have high interest rates and need to be addressed first before you turn your primary focus towards savings. The longer you have debt like this, the more expensive it gets.
However, if you don’t have an emergency fund, start setting aside $500 to $1,000 for unexpected expenses. This will prevent you from taking on any debt. Then get back to destroying that high-interest rate debt.
Once your consumer debt is gone, you have more freedom to decide what to do with your money. You’ll also have more money to save each month – this is why paying off debt is so important for savings!
Here are some ideas for what to do next:
- Get your emergency fund to the recommend 3-6 months worth of expenses
- Put money in your 401(k), especially if your company offers a match
- Contribute to your IRA – the max contribution limit for 2020 is $6,000, which equals $500/month
- Strategically destroy your student loans using the avalanche or snowball method
Getting rid of my student loans as quickly as possible was my biggest priority, and I probably had less saved than I should. But I felt okay focusing on my debt because I didn’t have a house or kids – less liability.
Consider your family situation, job, the kind of debt you have, and how your debt makes you feel to figure out how to allocate your money. And know that it’s okay to save money and pay off debt at the same time.
The final word on how to start saving money
I’m ending with a challenge: take one tip on this list and make it a reality. Maybe that’s creating a budget, looking at ways to increase your income, or setting up a direct deposit for your paycheck.
Whatever it is, do something.
It’s never too late to start saving money, but it’s always better to start sooner than later.
About Millennial Money Man
Bobby Hoyt is a former band director who paid off $40,000 of student loan debt in 18 months on his teaching salary and then left his job to run Millennial Money Man full-time. He helps other Millennials earn more through side hustles, save more through budgeting tools and apps, and pay off debt. He is a personal finance expert who has been seen on Forbes, Reuters, MarketWatch, CNBC, International Business Times, Business Insider, US News, Yahoo Finance, and many other personal finance and entrepreneurship media outlets.
