If you find yourself struggling to save money, you’re not alone. Recent studies by Cnet reveal that around 33% of Americans have paused their long-term savings goals, largely due to the increased cost of living brought on by inflation. But despite the challenges, it’s possible to build better savings habits, even if you’re starting with a small amount. Saving is a skill that can be developed with time and effort. In this article, we’ll walk you through creating a personalized savings plan, suggest how much you should save each month, and highlight the best types of accounts to help your money grow.
How Much Should You Be Saving?
A common savings goal is to set aside at least 10% of your income each month. For instance, if you earn $4,000 monthly, this would translate to saving $400. However, the ideal savings amount varies depending on your financial situation. If you’re living paycheck to paycheck, it might be challenging to save that much, but even small amounts can make a difference over time.
Before deciding how much to save, it’s important to take a closer look at your spending. This can be done by creating a budget.
Popular Budgeting Strategies to Help You Save
A good budget will serve as your roadmap, helping you identify areas to cut back and guiding your savings efforts. Here are five popular budgeting methods you can try:
- The 50/30/20 Rule: With this method, you allocate 50% of your income to essentials (like rent and groceries), 30% to discretionary spending (such as entertainment and dining out), and 20% to savings and debt repayment.
- Zero-Based Budgeting: This approach involves assigning every dollar of your income a job, ensuring that your income minus expenses equals zero at the end of the month. It helps you stay disciplined and accountable for every dollar spent.
- The Envelope System: A more traditional method, this strategy uses physical envelopes or digital equivalents to categorize your spending. Each category gets a set amount of cash, and when it’s gone, no more spending in that category for the month.
- Values-Based Budgeting: Prioritize spending based on what truly matters to you. For instance, if sustainability is important, you might spend less on transportation and more on organic groceries.
- Pay-Yourself-First: With this method, you set aside a fixed savings amount from your income before you pay any bills. This ensures your savings goals are met before anything else.
Getting Started with Savings
Setting up a budget is one thing, but how do you actually start saving? Begin by identifying a specific time each month to review your budget, track your expenses, and plan for the upcoming period. If you share financial responsibilities with a partner, involve them in this process to stay aligned on your goals.
Start Small and Build Momentum
Elle Martinez, creator of Couple Money and author of Jumpstart Your Marriage and Your Money, emphasizes the importance of starting with manageable goals. When she and her husband were saving for vacations, they set a modest target of $90 a month. Over time, this helped them afford bigger goals without going into debt.
How to Increase Your Monthly Savings
Experts generally recommend saving 10% to 15% of your income, but the key is to choose an amount you can save consistently. If your budget is tight, consider ways to cut back on discretionary spending, such as reducing dining out or subscription services. You can also look for ways to lower your bills, like comparing car insurance rates.
Automate Your Savings
One of the easiest ways to ensure consistency is by automating your savings. Set up automatic transfers to move a portion of your income into a savings account each month. Once this is done, you’ll quickly adjust to living off what’s left.
Utilize Subaccounts
Many banks offer the ability to create separate subaccounts for specific goals, such as a vacation fund or emergency savings. Labeling these accounts will help you track progress and stay motivated.
Windfall Savings
Whenever you receive a bonus or tax refund, consider putting a portion of that money toward savings. This can give a significant boost to your financial goals.
Which Savings Accounts Will Help You Grow Your Money?
Now that you’ve decided to save, where should you put your money? Here are some account options to consider:
- High-Yield Savings Accounts (HYSA): These accounts offer interest rates much higher than the national average. Even if interest rates drop, HYSAs typically still offer better returns than regular savings accounts.
- Money Market Accounts: These accounts offer both higher interest rates and access to checks or debit cards, providing flexibility while growing your money.
- Certificates of Deposit (CDs): A CD locks in your money for a fixed term at a fixed interest rate, which is typically higher than a savings account. However, you’ll face penalties if you withdraw early.
- Specialty CDs: Some banks offer CDs that allow you to withdraw funds early without penalties or adjust the interest rate if it increases during the term. These accounts may offer more flexibility but generally come with lower interest rates than standard CDs.
Take the First Step Toward a Stronger Financial Future
If saving feels overwhelming, start with small, achievable goals and grow from there. By setting up a budget, automating savings, and choosing the right accounts, you can steadily build a stronger financial future. Start today, and over time, you’ll see your savings grow.
