Saving money can be a breeze for some Americans. For others, it can be challenging to save any money at all, with many workers living from paycheck to paycheck. The average American saves only three percent of his or her net personal income. It is more important than ever to have extra funds available if an emergency arises.
Whether someone is looking to save up for a big purchase or wants to save more money in the long run, there are several ways to start the journey to financial success.
Research shows saving money requires a lot of thinking, willpower, self-control and planning. These skills take time to develop.
There are small changes you can make in your everyday life to help you get started and prepare for the coming year. Use this article to set yourself up for success and hang on to more cash in 2023.
Use a Spreadsheet
The best way to start saving more money is to review what you are currently spending. You can put what you are spending weekly, monthly or quarterly into a spreadsheet for the most thorough review.
Once you have a spreadsheet put together, you can use it to review your budget closely on a regular basis moving forward. A good way to remind yourself to review your budget is to set a reminder on your calendar. Make sure you schedule at least thirty minutes to study your finances every month.
Learn Where Your Money is Going
The next step in reviewing your current spending habits is taking a deep dive into your finances, transaction by transaction. Writing down your monthly expenses on a piece of paper and adding them together can be a great way to realize how much you are spending.
Many budgeters do not realize how much some of their smaller costs add up, such as subscriptions to streaming services or weekly take-out meals. These expenses add up quickly, even if each purchase seems insignificant.
You may find that you have a subscription service you rarely use. You may also realize that you order out or pick up convenience products more often than you need to. It’s a good idea to decide what expenses you can cut out first.
If you have a subscription service are using, you can still save in the long run. For instance, many services allow you to pay for six months or a full year at a time for a discounted price.
Making Room for an Emergency Fund
After you have identified what you can and cannot live without, it is time to identify what you enjoy spending money on and how to work it into your monthly budget. However, before you budget for optional expenses, begin budgeting for an emergency savings account.
An emergency fund account should include about three to six months’ worth of mandatory expenses. This includes the cost of housing, utility bills, car insurance, pet supplies and groceries.
Once you have created a budget you are happy with, you must stick to it. A good way to hold yourself accountable to your new budget is to write down every dollar you spend in a spreadsheet or journal to ensure you are not overspending.
Tracking your purchases helps you meet your financial goals. There are several budgeting apps available to you on your smartphone with tracking expenses features.
Set Savings Goals
Setting and sticking to savings goals for yourself is imperative. After making a budget, you know exactly how much money you can allocate for the near future and beyond.
Related Article: How Much Money Should I Save?
Infrequent expenses, such as new tires for your vehicle, home repairs or gifts for your loved ones pop up many times throughout the year. These infrequent expenses can ruin your budget if they are not properly managed.
It is always possible to dip into your emergency fund or use a credit card. However, if you can learn to anticipate these expenses and plan for them at the beginning of the year, you can react better.
Taking 30 minutes to set your goals for the year ahead can help you start saving now and know what you are up against. Start small by breaking down the amount you plan on spending for larger purchases. This can help you identify how much you need to save from every paycheck to reach your goal.
A great way to contribute toward your savings goals is to set up an automatic transfer of money into a savings account. This ensures that you put money away with every paycheck without any active effort on your part.
Open a High-Interest Savings Account
A high-interest savings account is an ideal place to put all the money you are saving for your goals. There are different types of savings accounts with varying levels of interest rates.
Most traditional banks have interest rates for savings accounts that are one percent or lower. However, if you search around you can find bank accounts that offer you a much higher interest rate.
Before opening a bank account, shop around to find one with a higher insurance rate and features that benefit you. Ideally, your savings account should earn at least 1.5 percent or more in interest.
Researching the best high-interest online savings accounts available to you only takes a few minutes. Once you find the best account for you, it is easy to sign up and start taking advantage of the high rates to save faster.
Make Extra Money by Investing
Another way you can hang onto money moving into 2023 is to start investing. Although investing takes a lot of additional work, it can have a large payoff if done correctly.
One common misconception is that you need to invest large sums of money at once. There are many investing programs specifically designed for investors who only have a few hundred dollars to spare.
Some allow you to invest using just your spare change. For instance, the Acorns savings app allows you to save your spare change and then place it in a portfolio selected by the app based on your risk tolerance and goals.
Depending on where you work, you may be able to enroll in automatic investment. Investing through your work is safer since you do not need previous investing experience.
Related Article: Best Investment Strategies for Beginners