Savers finally have the wind at their back. The trick now is to become a saver in the first place.
After years of near-zero interest rates, you can find savings accounts yielding 5%. However, banks offer these high rates in response to the Federal Reserve raising borrowing costs to moderate sky-high inflation; a phenomenon that has made it difficult for Americans to save over the past few years and caused so many to wrack up debt.
Still, you can save more. The trick is being conscious of your spending decisions, keeping a goal in mind and believing that you can succeed.
Go through your budget
Before you start saving, it’s a good idea to review (or establish) your budget and figure out how much you can stash away. (If you don’t follow a budget presently, you are not alone: Nearly three-quarters of Americans don’t, according to one survey. Still, you’re better off knowing where your money is going than living in mystery.)
One easy budgeting strategy is the 50/30/20 rule, where you split your take-home pay into three categories:
- 50% goes toward essentials.
- 30% goes toward wants.
- 20% goes toward debt repayment and savings.
It may take a few months to truly understand your spending, but go through your transactions and consider where you can cut back. It doesn’t have to be extreme; even small reductions in spending will add up.
Also, be on the lookout to earn more. If you get some additional income, save it instead of increasing your lifestyle.
Find out where you overspend
As you learn more about your spending habits, you may find you have one or two problem areas that need attention. Most of us have that one thing we spend too much money on, whether it’s restaurant trips or impulse Amazon purchases.
“It’s helpful to identify what your personal traps are and then set limits around them,” said Trae Bodge, a retail and money-saving expert.
For example, you can give yourself a reasonable monthly allowance for these luxuries and track your expenses regularly, which can help you see if you’re in danger of going over-budget. By meeting those goals, you’ll give yourself the confidence that you can get your spending on track.
Spending “hurdles” can help, too. For instance, you can delay discretionary purchases by a certain time frame, remove shopping apps from your phone and unsubscribe from marketing emails.
Open a dedicated account
Separating your savings from your everyday funds can help ensure you don’t spend the money you’ve earmarked for savings.
You have several options to choose from. A high-yield savings account can help your money grow quickly by earning interest. You also want to make sure it’s a no-fee savings account, so your hard-earned money doesn’t get spent on fees.
Automate transfers
Once you know how much to save and you’ve opened an account, consider setting up recurring automatic transfers to savings.
This “out of sight, out of mind” approach is helpful because, “you are training your brain to stop thinking about the funds as being available,” Bodge said. “If the money is transferred before you can designate another use for it, you’ll likely think of that money differently — or not at all.”
Prep for your grocery shopping
Not only is it typically more expensive to order take out and dine at restaurants, it’s only becoming more so. In December 2023, grocery prices rose by 1.3% compared to 5.2% when eating outside the home.
Still, grocery prices endured bouts of high inflation in the aftermath of the government’s response to the pandemic, meaning you can still spend way more on groceries than before. However, a little bit of prep work can help lower your bill by hundreds of dollars each month.
“When you walk into the grocery store with no plan, that’s when you overbuy and come home with hundreds in groceries but feel like you have nothing to cook,” said Andrea Woroch, a nationally recognized consumer finance and budgeting expert.
Before heading to the store, write a meal plan to help you reduce food waste. It may also help you curb spending because you have a plan to follow. And if you can shop for groceries using an app, you can track exactly how much your food will cost before checking out — which can help you stay within your budget.
Plan for major purchases
Saving up for a big purchase, like an appliance or a vacation, can help you from going into debt or dipping into your emergency fund. Look for a savings account with tools that help you organize your savings into specific goals, such as Ally’s.
Then, figure out how much you’ll need to save, and set up a fund dedicated to this purpose. You may feel you don’t have the extra money to save up for these purchases, but if you have fewer monthly payments and lower credit card minimums, you’ll have more free cash in your budget to save.
Saving up for larger purchases instead of financing them can start a positive cycle in your budget.
Cut your gasoline usage
Gasoline prices have increased dramatically since COVID, which means you could be paying hundreds more every year on this expense. But there are a few ways you can save money at the pump.
- Use a gas price app to search for the cheapest gas prices near you.
- Buy gas on Mondays or Tuesdays, which are typically the cheapest days to fill up.
- Avoid quick accelerations and high speeds. These driving habits can decrease your fuel efficiency.
- Pay with cash if the gas station offers a discount on this payment method.
- Use a credit card that gives you cash back on gas.
Shop for better rates
You have options when it comes to your cable and internet services, cellphone plan, insurance policies and other bills. Other providers likely offer cheaper prices, but you’ll need to do some research.
For each service, get quotes from at least three companies and compare prices at least once a year. If you find better prices for the same (or better) service, you can use that information to negotiate with your current provider or simply move your account to a cheaper company.
Review your bills
Paying your bills on time can help you avoid late fees — saving you money right off the bat — but it’s also a good idea to know what you’re paying for. Open your bills each month and make sure you understand each charge. Look for errors and any increases in pricing or fees.
Call the provider and ask if you can remove services you’re not using or find other ways to lower the bill. It may help if you’ve already shopped for a better rate elsewhere. The provider may be able to waive recurring fees, offer discounts to lower your premium or move you to a cheaper plan.
Remove PMI if possible
Private mortgage insurance, or PMI, is a cost you may pay if you took out a conventional mortgage with a down payment of less than 20%. You can cancel PMI payments once you’ve built at least 20% equity in your home — which can happen if you’ve paid down some of your principal and/ or your home value has increased.
Across the U.S., homeowners with mortgages have seen their home values jump. The median home sales price jumped from about $330,000 in the beginning of 2020 to more than $430,000 by the fall of 2023.
This boost in home value may help homeowners boost their equity and subsequently qualify for PMI cancellation, potentially saving them hundreds of dollars a month. If you think you qualify, call your loan servicer and ask about the next steps.
Frequently asked questions (FAQs)
Aim to save 20% of your take-home pay, says Carl Holubowich, a certified financial planner and principal at financial planning firm Armstrong, Fleming and Moore. If that’s unreasonable, pick a number that intuitively makes sense and build from there.
“The key is whatever level you start at to increase that percentage periodically,” Holubowich said. “If you got a raise or were promoted, consider increasing your savings rate.”
If your entire paycheck is going toward bills and debt payments, try to implement the strategies above to lower your expenses. With a bit more room in your budget, aim to put a small dollar amount, such as $10, in your savings account each month. Then, gradually increase that amount over time. One big way to loosen your budget is to take on a roommate, or downsize your living arrangements.
The quickest ways to save money involve cutting your expenses and increasing your income.
