Have you been struggling with saving money? If so, don’t beat yourself up – you’ve got plenty of company across the country.

According to the Economic Well-Being of U.S. Households report published by the Federal Reserve System, 48% of Americans have less than $400 in savings available. That included 13% with no savings at all.[1] Trusted source
The Fed
The United States of America's central banking system is called the Federal Reserve System. The Federal Reserve Act specifies three primary goals for monetary policy for the central banking system: increasing employment, preserving price stability, and lowering long-term interest rates.

If you have little in savings, or even nothing at all, we’re here to help. Let’s look at some reasons why you should save, the mechanics of how to save money, where to store your money, and how to make saving a habit you’ll continue for the rest of your life.

Why Save Money?

This is a more important question than most people realize. Everything is easier once you know exactly why you’re doing it. If you’re going to go from non-saver to saver, you need a clear idea of what you’ll gain from saving.

So why save money? Let’s take a look at several reasons:

  • To give yourself a cash cushion. Small, unexpected expenses have a way of becoming big problems if you don’t have the money to cover them. Savings will keep small expenses from becoming big problems.
  • To become less reliant on debt. Savings can keep you from using a credit card anytime you don’t have the cash to pay for something. Eventually, you may find yourself using credit cards mostly to take advantage of cashback rewards and not because you don’t have the money.
  • To save for short-term purchases. One of the best reasons for saving money is to make major purchases, like a car, a vacation, or the down payment on a home. 
  • To remove stress from your life. It’s not bills that keep us up at night, but the inability to pay them. Knowing you have extra funds stashed away will make for better sleeping at night and more productive days.
  • Savings are the foundation of financial independence. As your savings grow and your debts disappear, you’ll reach a level of financial freedom that may seem unimaginable right now.

Each of these benefits can become a reality in your life once you become a committed saver.

How to Start Saving Money in 4 Simple Steps

Like a healthy diet, regular exercise, or becoming more productive at work, saving money is an activity that gets easier with repetition. Getting started is the hard part, and many of us need a bit of a push.

Try these strategies:

1. Set Specific Savings Goals

For more experienced savers, it’s common to have multiple savings goals. But if you’re just starting out, set just one goal. That will make the process of moving from non-saver to saver easier.

For example, let’s say you want to replace your car next year and the one you want to buy costs about $30,000. Your current car doesn’t have much in the way of a trade-in value, but you want to make a large down payment on the new one to keep the monthly payment manageable.

If you finance the entire cost of the car, the monthly payment will be about $539. But by making a down payment of 20%, or $6,000, the payment will drop to a much more manageable $431.

You don’t have $6,000 for the down payment right now. But if you begin saving $500 per month, you’ll have the full down payment in 12 months. It’s also convenient. If you save $500 per month between now and the time you buy the new car, you’ll be accustomed to making that payment, which will make budgeting for car payments easier.

👉 The purchase of a new car will provide the motivation for you to set a savings goal, and to stay on track with it.

2. Create a Budget and Leave Some Room for Savings

It’s hard to save without a budget. Your budget tracks your income and expenses. That helps you identify expenses you can cut or even eliminate. That means saving money on a regular basis.

If you’ve never worked with a budget before, check out free budgeting software, like Personal Capital. You can assemble and track your bank accounts and credit cards to see exactly where your money is going.

You don’t need to do anything dramatic to get started. Just by setting aside $10 per week, you can save $500 per year. But if you can save $10, you can save $20, $30, and eventually $50 or even $100 per week. That’s when saving money begins to really make a difference and you can set future goals like saving $10,000 in six months!

💡 One of the best ways to save money is to do it automatically. You can have small amounts deducted from your paycheck and automatically transferred to a savings account. Once you’ve created the extra breathing room in your budget, saving part of your paycheck will give you a way to move money into your savings account without any effort or discipline on your part.

3. Supercharge Your Savings 

If saving small amounts each week or month isn’t enough, you can fast-forward the process by finding additional sources of income or creating windfalls.

You can get extra income by working more hours, asking for a raise, taking a part-time job or even creating a side business by cashing in on any skills you have. The extra income will make your savings grow faster when added to the money you’re already saving out of your existing income.

Windfalls are one-time events or activities that create a sudden inflow of cash. The most common is an income tax refund, which average $2,812, according to the IRS[2]. Another example is bonus income, money from a garage sale, or from the sale of personal items.

💡 If you’ve always had the habit of spending windfalls, try redirecting them into savings. You’ll reach your savings goals much faster.

4. Make Saving a Habit

If you want to become a regular saver you’ll need more than a single goal. A series of goals will motivate you to continue moving forward.

A short-term goal might be building an emergency fund so you’ll have a cushion to eliminate much of the financial stress in your life. The second may be to save for the down payment on a car or to pay for an upcoming vacation. You may also have bigger, longer term savings goals, like saving for the down payment on a house. And if you want to look really long-term, you’ll begin saving for retirement.

👉 Whatever objectives you select, having multiple goals will keep you in the savings habit, even after you’ve achieved your first savings goal.

Where to Save Money

Part of saving effectively is knowing where to keep your money. For money that you might need quickly, like an emergency fund, a savings account is ideal. Try these options.

A Local Bank or Credit Union

Either a bank or a credit union will be a logical first choice as a home for your savings. You probably already have a checking account, so it will just be a matter of opening a savings account, which can also be linked to your checking account. As you accumulate extra funds in your checking account, you can easily transfer them over to savings.

👉 Banks and credit unions have the advantage of being local, and you may even have a loan through one already.

High-yield Online Savings Accounts

One of the major disadvantages with most local banks and credit unions is that they don’t pay much interest. According to the FDIC the average interest being paid on bank savings accounts nationwide is a disappointing 0.42%[3].

If you’re not satisfied with that low yield – and you shouldn’t be – consider high-yield online savings accounts. They typically pay anywhere from 10 to 15 times the interest rate paid by local banks and credit unions. Many high-yield savings accounts pay interest rates that compete favorably with money market accounts, often with fewer restrictions and with FDIC insurance.

Examples include:

  • SoFi checking and savings account is currently paying 4.60% APY and requires no minimum opening balance.
  • Citi is currently paying 4.25% APY and also requires no minimum opening balance.
  • Ally Bank is currently paying 4.35% APY and requires no minimum opening balance.

Each of the above accounts also charges no monthly fees, which will give you 100% of the benefit of the interest earned.

👉 Since these are essentially remote accounts, you’ll probably be less likely to access the funds as frequently as you might from a local bank. That will make it easier for you to keep your savings for their intended purpose.

Longer Term Savings

If you’re saving for longer term objectives, you may choose to put your savings in accounts that offer less access but higher returns. You will probably want to establish a solid emergency fund before taking on accounts of this type, because you won’t be able to withdraw without facing interest penalties. Consider these possibilities.

Certificates of Deposit, or CDs, are savings instruments that commit a sum of money for a fixed amount of time at a guaranteed interest rate. CD terms often range from 6 months to 2 years. This is a great way to lock up savings that you want to commit to medium term goals like building a down payment for a home. Interest rates will vary with the term and amount on deposit. Shop around for the best deals.

Tax-Advantaged Retirement Accounts, like IRAs and 401(k)s are long-term accounts designed to save for retirement. If your employer offers a 401(k) plan you should consider using it, especially if your employer will match part of your contribution. That’s free money, and you don’t want to turn it down. If your employer doesn’t offer a 401(k), consider opening an Individual Retirement Account or IRA. These accounts come in many types. Do some research and consider consulting a professional adviser before setting yours up.

Invest through Robo-advisors

If you have longer-term investment goals, you may want to consider moving some of your savings into an investment account. Don’t worry if you don’t know anything about investing, there are services available that will create and manage an investment portfolio for you and do it for a very low fee.

Robo-advisors are online, automated investment platforms that will create a diversified portfolio – including stocks, bonds, and other investments – with just a small amount of money. You can typically begin investing with as little as $10. Once you open an account and your portfolio has been created, all you’ll need to do is make regular contributions and watch your account grow.

One popular example is Betterment. It was the first robo-advisor and remains one of the largest. You can open an account with no money at all and begin building your portfolio through regular contributions. They charge an annual management fee of just 0.25%. That means you can have $1,000 managed for just $2.50 per year.

Another example is Wealthfront, which will include real estate in your portfolio, in addition to stocks and bonds. They do require a minimum initial investment of $500, but the fee is still 0.25% per year.

One of the very best robo-advisors for new and small investors is Acorns. They’ll create and manage your portfolio for you, though they do charge a fee of $3 to $5 per month.

The advantage with Acorns is that they help you to save money. They do this through a process referred to as “Round Ups”. You connect the Acorns app to your checking account or even your credit cards, and it will automatically round your purchases up and move the spare change into savings, then to your investment account.

For example, let’s say you purchase a cup of coffee for $4.25. Acorns will charge your checking account or credit card an even $5, then move $0.75 into savings. The round-up process will enable you to save money through your regular spending activity. That will enable your investment account to grow without you even noticing.

Create a Savings Ladder

As your savings habit settles in, your goals will expand and you’ll start looking for more sophisticated ways to save. If you’ve reached that point, consider a savings ladder…

You can set up a ladder system for savings that looks something like this:

Short-term savings – these are funds you’ll accumulate for an emergency fund or near-term spending goals like an upcoming vacation or holiday spending.

Medium-term savings – these can include larger savings goals, like saving for the down payment on a car or even a home.

Long-term savings – retirement is the best example of long-term savings, and everyone should begin a plan as soon as possible. Tax-advantaged retirement accounts and investment accounts are ideal vehicles for retirement savings.

👉 This kind of laddered saving setup will not only help you to meet multiple savings goals. It will also provide you with plenty of incentive to continue saving money on a regular basis.

Get Started Now!

Now that you know why you should save, how to save, and where to save, the only thing left to do is get started. And the best time to do that is right now. Start with just $10, then build from there.

The reason millions of people don’t have any savings is because they never got started. Don’t let that be you! Start now, from whatever your situation is at the moment. Don’t worry about how much you’re saving. The goal is to get the ball rolling and create the momentum you’ll need to make saving a lifetime habit.

Looking for inspiration? There’s a whole realm of weird ways to save money that could potentially make a significant difference to your bank balance.

You won’t reach financial independence without becoming a saver, so start now and get on your way!

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