Whether you’re a young adult with your sights set on buying a home or a mid-career couple looking to take a vacation or build an emergency fund for unexpected expenses, it’s important to find the best way to save money based on your situation and goals. Read our seven tips for saving money and discover some simple steps you can take today.
1. Track your spending
If you want to increase your savings but aren’t sure where to start, begin by studying your current spending habits. Record all your expenditures, no matter how small, from daily coffee runs to monthly utility bills. You can use a basic spreadsheet, a notebook or one of many free online spending trackers or apps. Categorize your expenses into groups like groceries, gas, childcare, and rent or mortgage. Then, calculate the total amount spent in each category. Cross-reference your records with credit card and bank statements to ensure that you’ve accounted for everything. Getting a clear picture of your current expenses enables you to create a realistic budget and identify ways to change your spending based on your goals.
2. Create a zero-based budget
Zero-based budgeting assigns a specific purpose to every dollar of income, meaning your total income minus your total expenses should equal zero. Unlike traditional budgeting, where you might start with last month’s budget as a baseline and make updates, zero-based budgeting starts from scratch each month.
This approach forces you to be strategic about where you’re directing your money, allowing you to prioritize your financial goals and cut unnecessary expenses. Begin by listing all your income for the month. Then, create categories for all your expenses, including fixed costs like rent or mortgage, utilities, groceries, transportation and discretionary spending like entertainment and new clothes. Make sure to create a category for savings and/or debt re-payment like credit cards or student loans. Allocate money to each category until your income is entirely allocated and there is “zero” left over.
3. Open a high-yield savings account
A high-yield savings account typically offers a significantly higher interest rate than a standard savings account. A high-yield savings account enables you to grow your savings at a faster pace by earning more interest on deposited funds.
When looking for a high-yield savings account, keep in mind that they may come with minimum balance requirements. If you can meet those requirements and choose a financial institution that is insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA), high-yield savings accounts are a safe, accessible way to grow savings.
4. Tackle debt to stop accruing interest
Paying down debt can save you a significant amount of money in the long run. High-interest debt, such as credit card balances or personal loans, often come with substantial interest charges that erode your finances over time. By prioritizing debt repayment and reducing these interest costs, you free up more of your income to put toward savings. This means that you not only eliminate the financial burden of debt but also have more capital available to grow your wealth.
While creating your zero-based budget, make sure to dedicate as much money as possible to any high-interest debt you’re carrying. Most experts recommend prioritizing high-interest debt elimination over savings until the debt is gone and you can allocate more money to your savings account. Keep in mind you should still have emergency savings set aside for unexpected expenses like a car repair (the last thing you want to do is add more debt when you’re trying to pay off bills).
5. Find ways to reduce spending
Reducing your spending may seem obvious, but it’s amazing how much you can save by combing through your expenses and zeroing in on ways to eliminate or shrink them. Start by identifying nonessential expenses, such as entertainment and dining out, that you can trim without significantly impacting your quality of life. Also, examine your fixed monthly expenses, like mortgage, car insurance or cell phone plans, and explore ways to reduce these costs (some ways to do so include shopping for better deals on insurance and utilities or bundling services for a better overall deal).
Another area where most people can find savings is recurring subscriptions and memberships. For instance, you might notice you could reduce the number of streaming and news subscriptions you use. Food is another category to examine closely since it’s usually a large line item in anyone’s budget. To reduce your spending in that area, it’s helpful to eat most meals at home and save restaurant visits for special occasions. To save on entertainment in general, use community event listings to find free or low-cost shows or festivals.
6. Set short and long-term goals
To design and refine your saving strategy, think through your short and long-term saving goals. Short-term goals might include building an emergency fund or saving for a vacation within the next year, while long-term goals could involve buying a home, funding your child’s education or saving for retirement.
Next, establish a specific timeframe and financial target for each goal and then break down larger objectives into smaller milestones. You may discover you need different types of savings accounts for different goals. Your retirement funds will likely be directed to an investment vehicle specifically designed for retirement savings, for instance, while your emergency fund may be a separate savings account from your vacation fund. Once you allocate money to each account, regularly track your progress, adjust your budget to align with your goals and consider automating the money that goes into your savings to ensure consistency.
7. Make automatic savings deposits
Setting up automatic transfers to your savings account is an excellent strategy for saving consistently without the temptation to spend the money elsewhere. By automating the process, you ensure that a portion of your income is regularly diverted to savings without even hitting your checking account, which helps you reach your financial goals with minimal effort.
At Bellco Credit Union, we offer several different types of savings accounts. Visit our personal banking page to learn more about the options you can use to build up your savings.