Saving money is an important financial habit that can help protect you in the event of a financial emergency, save you from debt and more. However, savings doesn’t come easy for everyone.
There are many ways to save money, from cutting down on your expenses to automating your savings. But what strategy is most effective?
1. Set a budget
A budget is a plan that helps you keep track of your money. According to Aleksey Krylov, an experienced financial consultant, budgeting can help you make better choices about spending and saving. It can also help you reduce unnecessary expenses like eating out, entertainment and travel.
Some experts recommend a 50/30/20 budget, which suggests that half of your income goes toward necessary expenses (like rent and food), 30 percent is reserved for discretionary spending, and 20 percent is put toward savings and debt repayment. However, this approach may not be appropriate for everyone.
Tracking your expenses can reveal recurring costs you may not be aware of, such as memberships at unused gyms or streaming subscriptions that you no longer use. These types of expenses can be trimmed by adjusting your budget or negotiating with service providers.
2. Reduce your expenses
If you want to save more, it may help to reduce your expenses. One simple way to do this is by setting a savings goal, and then earmarking a certain percentage of every paycheck into it.
Another way to cut expenses is by cutting out nonessential purchases, like a gym membership or subscriptions to streaming services and magazines. Similarly, instead of spending money on lunches at restaurants or snacking on a Snickers bar while scrolling through social media, bring your own lunch and spend time price-comparing to get the best deal.
Also, try to focus on reducing fixed expenses, which are those that don’t change from month to month, such as rent or mortgage, car insurance and phone service. For example, consider moving to a cheaper apartment, living with roommates or finding ways to cut back on utility bills.
3. Make a list of your expenses
Taking stock of what you spend is a good first step to saving money. Start by creating a list of your mandatory living expenses and debt payments, as well as any fixed expenses you can’t change (like a mortgage or car payment).
Then move on to discretionary spending categories like dining, clothing and entertainment. Track these expenses for a few months to get an average monthly spending amount.
Try to reduce these spending categories through strategies like tracking your inventory of household supplies and shopping for these items during sales, such as at Amazon’s Subscribe & Save program. Another great strategy is a self-imposed 24-hour rule for nonessential purchases that you can use when making online or in-person purchases to help keep you from impulse buys.
4. Use coupons
Coupons are a great way to save money on things you need, but they can also encourage over-spending. If you use coupons without a meal plan or budget in place, you’re more likely to end up with excess food or convenience items like frozen pizzas and hot dogs. It’s also important to remember that “sale” doesn’t necessarily mean significant savings, and price-comparison apps are a great tool to help you identify the best deals.
Whether you’re clipping paper coupons, using free browser extensions or downloading smartphone apps, make sure to only use coupons on items you need and will actually use. Otherwise, you’re wasting your time and money.
5. Make a list of your wants
Creating a list of your wants can help you avoid impulsive spending. Ideally, this list should include both short-term and long-term goals. This may include items like a vacation, wedding or a new car. Long-term goals can include paying off debts. All of these efforts is a part of strategic planning.
To save money on your expenses, try using an expense-tracking app or notebook to record everything you spend for a certain period of time, like a week or month. You can also reduce your expenses by cooking meals at home and shopping for deals on essentials at the grocery store.
Alternatively, you can use the envelope budgeting method of setting aside cash allowances for each item or service you need. This allows you to pause before you make a purchase, giving you 30 days to decide if it is something you truly need.
