In a perfect world, everyone would have a healthy amount of money put away, but unfortunately the majority of people in the US have less than $1000 in savings. Your savings will come in handy in case of emergencies—because no matter how careful you are, emergencies will always pop up. Or you may want to save up for something in the future, like a wedding, a vacation, or a down payment on a car. No matter what you’re saving for, don’t get discouraged if you’re starting from scratch. Everyone has to start somewhere.
Evaluate Your Spending
Your first step is to take a look at your spending to see where you can cut down. And don’t just think about it—pull out your debit and credit card statements. Start with subscriptions. They cost you money whether you use them or not, and you may have signed up for something years ago that you have less interest in now. Do you still use Pandora Premium? Is Bark Box still necessary, or is your dog already spoiled enough?
Then look at other expenses and decide what’s necessary and what can be replaced with cheaper options. Can you go to Redbox instead of the movie theater? Can you invite your friends over for a drink instead of going to a bar?
You also need to change the way you shop. What are your shopping weaknesses? It could be clothing, restaurants, video games, or anything else that you tend to buy without thinking about the cost. These items don’t have to be cut out entirely, but you need to account for them in your budget.
Start a Budget
Once you know how you spend your money, you can create a budget that carves out a space for you to start saving. Allocate a limited amount of money each month that you’re free to spend on inessential items—and then track your spending to make sure you stick to it.
Even necessary items like groceries, transportation, and bills can be part of your overall budget. There are several online tools to help you figure out a reasonable budget, but only you can hold yourself accountable for it.
Open a Savings Account
Don’t just keep your savings in your checking account. Putting the money in a different account helps you mentally separate it from your spendable money. You’ll probably also get a slightly better interest rate, but the difference will likely be so small you won’t even notice it.
Set Your Savings Goals
If you can afford it, put away 10% of your paycheck as soon as you get it. If you can only start with 5%, that’s still a great achievement—keep it up, then aim to increase to 10% later. By putting away the money as soon as you receive it, you’re less likely to try to spend it before your next paycheck.
Avoid Credit Card Debt
Credit card interest can be as much as 30%, so carrying a balance from month to month ends up costing you much more than you might expect. And making only the minimum payment every month can lead to years of interest. It’s best to avoid this kind of debt entirely; but if you already carry a balance, then you should start paying it off as soon as you can.
However, don’t immediately pay off your credit card debt at the expense of your savings—a savings account can help bail you out of an emergency situation which might otherwise force you to use a credit card. So, if you only have 8% of your income to spare, put 4% toward paying off your credit card debt and 4% toward your savings.
Even if you feel you’re late to the game when it comes to savings, remember that putting away money today is a great investment in your future.