Do you want to start saving money but have no idea how to begin?
You’ve come to the right place!
When I realized that I wanted to buy a van and travel in it full time, the first thing I did was research how to start saving money. Prior to that, I had never intentionally saved any cash in my life (other than loose change).
Sure, I had let money build up in my checking account from time-to-time. But that money would disappear as soon as I came across something I “had” to have.
That all changed once I set a savings goal and took the necessary steps to reach it. As of today, I have managed to save more than I ever thought I could. I even got a head start on my emergency fund and student loan payments!
So, without further ado, here is how you can start saving money even when you don’t know where to start.
Set your savings goal.
Why are you trying to save money? Do you want to buy a van and live in it all year around, or are you just trying to create an emergency fund? Identifying why you want to save money helps because it gives you a goal to work towards.
If you don’t have a specific goal in mind, make it your goal to create an emergency fund. If a big, unexpected expense comes your way down the road, you will be ready for it.
Create a savings account.
Once you have identified your why, the best thing you can do is open a savings account. This might seem obvious, but it did not occur to me that I needed a savings account to save money. I thought I would just leave it all in my checking account and somehow know what money was “saved” and what money I could spend. Spoiler alert: it didn’t work.
Leaving your “saved” money in your checking account is a bad idea for a few reasons. First, there is nothing in your checking account that will tell you what money you can and cannot spend. Second, you will feel like you have more money to spend because your checking account will look bigger, which will probably cause you to spend more money. Third, you will have access to that money via your debit card and checkbook, making it easy to spend.
In my experience, keeping the money you “save” in your checking account means you will end up spending it.
How to open a savings account:
There are two ways I recommend going about this: open up a savings account with your current bank or open up one with a new/different bank.
If you are pretty good at managing your money, I recommend opening a savings account with your current bank. This makes it easy to transfer your savings each month, and you can access all your accounts on one website/app. For this to work, you have to have the self-control not to transfer money out of your savings.
If you do not have the self-control to leave your savings alone, I recommend opening an account with another bank. Why? Because you won’t be able to instantly transfer your savings into your checking account on a whim. It can take days (or even weeks) to make a transfer between banks, which limits impulse spending. As an added bonus, you won’t see your savings account balance when you look at your checking account balance, so you won’t see that money as available for spending.
(Pro tip: Not all savings accounts are created equal. Some don’t gain interest at all while others do. If you can, do your research and try to get a savings account that gets at least 1% APY.)
Consider your savings as a set, non-negotiable expense.
While having a savings account is progress, you will never reach your savings goals if you don’t put money into that account regularly. Instead of viewing you savings as something you’ll add to if you can, think of it as a monthly bill you HAVE to pay every month. With this thinking, it is easier to put money aside every month because your savings become a priority.
To determine how much you can afford to save, you need to determine your set monthly expenses. To do this, add up approximately how much you pay each month for rent, insurance, groceries, etc. and subtract that amount from your paycheck. Then determine how much you want to save with your savings goal in mind. Subtract that from your paycheck as well. The rest of your paycheck is your discretionary income for the month.
With this mindset, your discretionary income will be what is left after you have saved, not the other way around.
Always leave yourself some discretionary income each month. If you usually spend money whenever you feel like it, having a budget will take some getting used to. Make that process a little easier by leaving yourself a little spending money each month.
A budget that doesn’t include some discretionary spending money is nearly impossible to stick to. Don’t set yourself up for failure.
Automate your savings.
An easy way to keep up with your savings is to have your bank automatically transfer money into your savings account each month. To do this, you will need to sign up for an automatic recurring transfer online or on your bank’s app.
If you decide to transfer $200.00 into your savings account on a monthly basis, set up an automatic transfer of that amount to be taken out every month. If you’re paid twice a month, you could split that up between two transfers of $100.00 each. The amount and the transfer date are completely up to you. I found it useful to transfer my savings out of my checking account the day my paycheck hit the bank.
You can always manually transfer money into your savings account if you would like. However, I find it much easier to save money if it’s automatically dumped into my savings when my paycheck arrives. That way I don’t have a chance to spend it before it moves to savings. If I have money left over at the end of the month, I manually transfer it into my savings later.
Keep in mind, if you run into a month where money is tight and you don’t think you can afford to transfer money into your savings account, it is perfectly okay to stop or pause the automatic transfer.
I’ve done this on a few occasions myself.
The most important thing is to not remove money from savings unless there is an emergency or you are spending it on what you saved for.
As an alternative, you may be able to opt for a portion of your paycheck to be automatically deposited into your savings account. Your HR person should be able to help you set this up.
Revisit your budget every few months.
As time passes and life changes, it’s important to evaluate your monthly savings and make adjustments if needed. If you notice you have excess spending money left at the end of each month, increase your savings goal. If you feel strapped for cash every month and don’t have enough money for your regular expenses (I’m talking groceries and gas, not impulse purchases), then lower the amount you save each month.
Revisiting your budget also allows you to edit your financial goals. When I started saving money, I had one particular goal in mind: save enough money to buy a van. But as I’ve saved, I’ve realized I have other financial goals as well. To accommodate these goals, I had to rethink my savings plan.
Make multiple savings accounts.
If you have multiple savings goals, my advice is to create a separate savings account for each of those goals. This is totally optional, but I find it easier to save for multiple things by using multiple savings accounts.
In fact, I currently have three savings accounts. Each saving account is dedicated to a certain goal (e.g., van life, emergency fund), and the money in each can only be used for that particular thing. I also clearly label each savings account so I know exactly which account belongs to which goal.
This is useful for a few reasons. First, I can’t accidentally dip into my emergency savings when I buy something for my van because the accounts are separate. Second, it allows me to set different monthly saving goals for each. For example, I only put money in one of my accounts every few months, while the other two get “fed” each month. And my van account receives a larger monthly deposit than my emergency fund.
I know this is a long post with lots of information to take in, so thank you for sticking with me until the end!
While it may feel like you still have a long way to go on your money-saving journey, let me be the first to congratulate you on conquering the first step. Even if you haven’t opened a savings account or started your budget, you’re already on the right track just by doing some research.
Have any budgeting or money saving questions? Have some tips of your own you’d like to share? Drop a comment below!
I’d love to hear from you.
Shawnee Webb
I use the everydollar app to budget. At first, I hated it, but now I can’t live without it. I have been using it consistently for over a year now!
Laramie
That’s awesome! It’s a struggle to find a good budgeting tool that works for you. I’ve never heard of the EveryDollar app, but I’ll check it out! Thanks for the tip!