You probably already know you need to save more money — but where do you start? The thought of stockpiling away funds isn’t glamorous, but learning some simple tricks for how to save money as early as possible will be beneficial in the long run by establishing good habits. And it’s easier than you may think to save money.
Just a few strategic decisions is all you need to set yourself up for financial success. Before you know it, you’ll be hitting your savings goals with minimal effort.
1. Set Yourself Up With the Right Type of Account
Savings accounts provide a secure place to stash your cash — but they’re not all created equal. It’s important to find a savings account that’s right for you to maximize your assets and get you towards your goals faster. Things to consider when analyzing your options include minimum balance requirements, fees, and interest rate.
A basic savings account at your national or local bank, while being convenient, will likely have a relatively low interest rate, meaning less return on your savings. Banks and credit unions offer other options that may be better if you want higher interest rates and lower fees.
Online Savings Accounts
These accounts offer higher interest rates than regular savings accounts, along with lower fees due to lower overhead costs. These accounts also typically offer ATM cards and mobile-friendly check depositing. You can also electronically transfer funds from your regular bank (if you don’t mind the 3-day wait).
Money Market Accounts
Money market accounts are similar to savings accounts but you can often get a better interest rate. They’re also a good option if you want to be able to write checks or make debit card purchases from the account — as long as you stick to their limits. Keep in mind that these accounts typically require a higher minimum balance.
Certificate of Deposits (CDs)
CDs will likely have the highest interest rates and are great options if you don’t need to access your money for at least six months. These accounts come with varying time commitments, and you pay a penalty if you need to withdraw funds early. Some CDs offer penalty-free withdrawals, but these usually come with a lower interest rate.
2. Make a Budget — and Stick to It
Once you’ve decided on the right type of savings account, it’s time to make a budget. When deciding how to save money, start by paying close attention to how you’re spending your money and cut out any unnecessary expenses and bad spending habits.
Follow the 50/20/30 Rule
If you’re struggling to know how to portion out your income, consider the 50/30/20 rule. This rule suggests that half of your income should go to necessary expenses such as rent, groceries, and bills. 30 percent of your income should be allocated toward “wants” such as hobbies and dining out. The remaining 20 percent is set aside for retirement accounts, paying off debt, and building savings.
Use Money Management Apps
Using an app to help manage your money can help take away the stress of doing it all yourself. They are a simple and secure way to help you stay on track with your budget and make it easy to understand how you’re spending money.
With features like bill management, investment tracking, alerts and advice, and even free credit scores, it’s never been easier to be financially organized. And if you’re worried about safety, look for apps with strong security measures such as multi-factor authentication, touch identification, and security scanning for sensitive data transfers.
3. Make Friends with Automation
Stop manually transferring money over to your savings account after every paycheck. It’s easy to forget to do this, not to mention painful to watch the money leave your account. When you’re figuring out how to save money, automation makes the process easier.
Set up Auto-Transfers
Most banks offer auto-transfers that you can set for specific days based on when you get paid. Consider a small daily auto-transfer, or a larger weekly or monthly amount. Set it and forget it — and watch your savings grow with zero effort.
Utilize Direct Deposit
Another way to leverage automation is with direct deposit. Most employers give the option to deposit a certain amount of your paycheck directly into your savings account. That’s money you won’t even miss because it never hit your checking account.
4. Improve Your Credit Score
A good credit score is the backbone of good money management practices and will set you up for lower interest rates on loans, which could save you thousands of dollars over your financial lifetime. When you’re learning how to save money, start by checking your credit score to see where you stand — then work to improve it.
Get Lower Interest Rates
If you’re making payments on a 30-year, fixed rate mortgage of $200,000, having a damaged credit score could cost you an extra $190 per month on your payment until your mortgage is paid off. With a good credit score, that’s $190 per month that you could be putting towards your savings goals.
Try to Avoid Carrying a Credit Card Balance
Speaking of interest rates, those associated with credit cards are easily avoidable by not carrying over a balance month-to-month. Carrying too high of a balance can actually hurt your credit score if you’re using too high a percentage of your credit limit — but carrying any balance at all costs you interest. This can hinder you from saving as much money as you could be.
If you currently have a credit card balance, consider allocating part of your income to pay it off as quickly as possible. You can then stash that money you were using on interest to help your savings grow.
5. Consider Refinancing Your Home or Auto Loan
If you’re trying to figure out how to save money by refinancing, first evaluate your home or auto loans and decide if it’s a good time to refinance. There could be benefits to refinancing — just watch out for high closing costs. Weigh how much money you’ll be saving by refinancing and compare it to the cost to refinance to decide if it’s worth it. Thorough research and talking with a financial advisor will equip you with better knowledge before making any major decisions.
Lower Your Monthly Payment
The main reason people refinance is to lock in a lower interest rate, and in turn, lower monthly payments — even though this sometimes involves increasing the loan term. The key to successfully saving through refinancing is having a clear plan for what to do with all the money you’ll be saving every month. Make sure it goes towards something that will actively help you hit your savings goal, whether it goes directly into a savings account, or back into your mortgage to help you pay it off sooner.
Ditch Private Mortgage Insurance
If your down payment was less than 20% of the cost of your home, you likely had to buy private mortgage insurance, which is usually 0.5% to 1% of your total loan — paid every year. The reason your lender will likely make you get this insurance is to protect the mortgage company in case you default on the loan.
The good news is, after having your mortgage for a few years, you will have likely lowered your loan-to-value ratio, which increases your equity. At this point, once you have met the necessary requirements, your mortgage lender is required to remove the PMI. You don’t have to refinance for this to happen, but in combination with your refinance, you could potentially save thousands of dollars per year. Hello, extra money for saving.
6. Get Healthy
It’s not hard to argue the fact that getting healthy has a myriad of benefits, both for your waist and your wallet. Proper money management comes down to good habits, and the same can be said about getting healthy — and both can help you crush your savings goals.
You Could Earn More
Yes, a study by Cleveland State researcher Vasilios Kosteas found that exercising regularly can lead to an average 10% salary increase for women and 6% for men. Getting your blood flowing leads to increased productivity, boosting your potential for a promotion or raise.
Getting healthy also means less sick days and doctor visits, which — aside from being a drag — lead to more work days missed. When you miss work too often, it can be detrimental to your paycheck.
You’ll Likely Spend Less
An overall healthier lifestyle means less money spent on pills, doctor visits, and other health expenses. You’ll also be saving the money you would otherwise be spending on unhealthy vices like junk food, cigarettes, or soda. Plus, consider replacing expensive, sedentary activities like a $12 movie with a nature trail hike with friends.
If you have life insurance, even shedding a few extra pounds can save you 25% or more. And did you know that many employers and insurance providers offer discounts on healthy foods and weight loss programs? Take advantage of the discounts out there for getting in shape.
These six tips on how to save money look beyond short-term fixes, setting you up for a lifetime of financial success. If you’re trying to save money easily and consistently, keep these things in mind and you’ll likely meet your budget goals and find your funds growing. Because after all, less time spent worrying about finances means more time enjoying things that truly matter — like that Europe vacation you diligently saved up for.