We would all like to save a bit more money. Whether you want a better safety net, need to pay off debt or are saving up for a big purchase, having extra cash on hand is a good thing. It’s not easy though. The truth is, most of us are relatively smart with our money. It’s just that building wealth isn’t very easy for generations that spend 40% of their income on rent, 10% on student debt and (thanks to the era of gig work) an extra 7.65% in taxes. Instead, if you want to save money, try a couple of these tips for the new year.
Consider working with a financial advisor to see how you can maximize the growth of your savings.
Build Strict Goals and Spending Habits
We’ll assume that we’re starting from $0 and would like to hit $10,000 by the end of 12 months. The investment won’t help us much here. It’s probably worth putting this money someplace relatively safe, like an S&P 500 account if you can stomach the risk of a downturn, but don’t expect much performance in just one year.
Instead, we want to focus on cash. The best way to do that is by setting goals. To save $10,000 in a year we need to save:
- Every month: $834
- Every two weeks: $385
So that’s our first goal. We need to measure the amount we set aside and hit $385 every two weeks, or $834 every month.
Setting goals is extremely important because it turns this into a more manageable project. It’s a lot easier to save $385 than $10,000. It also lets us adjust our habits if we need to catch up in short bursts.
Build spending habits that let you generally meet your goals of $385 every two weeks and $834 every month. Then use crash-budgeting in short, sustainable bursts any time you start falling behind. If, at the end of two weeks, you’ve set aside $390, great. If you only set aside $250, then it’s time to shut down the spending until you’ve deposited that extra $134. Once you’re caught up, return to a normal life.
Set Up Minimums, Discretionaries and Manual-Deductions
This is an evolution on the concept of “pay yourself first.” To save $10,000 in a year, you will need to save $834 per month. That number breaks down further into two categories:
- Minimums – The amount you know you can set aside every month
- Discretionaries – The amount you have left over to save at the end of every month
Your minimums are what you know you can save without affecting needs, debts or lifestyle. This is the money that you know you’ll have leftover, so it’s the money that you can commit into your savings at the start of every month without causing problems.
Your discretionaries is the money that you manage to save every two weeks and every month through budgeting and cut phases. You can’t necessarily plan for this money because you don’t always know ahead of time how much you’ll manage to save. You commit this money into your savings at the end of every month once you have it in hand.
This distinction matters. As you work on your budget and reduce your monthly spending, you can increase your minimums. As your minimum savings increase at the start of each month, you need to find less discretionary savings over the course of the month.
You can also make deductions manually yourself. On the first of each month, move your minimum amount to your savings. This takes the money out of your daily budget, eliminating it as a source of potential spending and boosting your savings along the way. It also helps psychologically. If you can start the month with $300 saved, then you only need to save another $534 to meet your goal.
Get a Spending Tracker
Daily spending is actually a big deal when it comes to budgeting, it’s just not the spending you’re paying attention to. Instead, many of us spend a surprising amount of money every day without even realizing it. It’s not your morning cup of coffee. It’s the half-dozen app subscriptions you don’t realize you still have, the extra beers after work and the impulse buys from the grocery store.
Start building your new habits by examining your old ones. Use a budget tracker like Mint or PocketGuard, or see if your bank or credit card provides this kind of analysis for free. Find out where your money is really going on a monthly basis because odds are a lot of those expenses will surprise you. Once you know what you’re spending on, you can start making cuts.
Maybe Get a New Place
From housing to student debt, the big expenses in life have gotten much more expensive. In many cities, it’s common to spend between 40% and 50% of your income on rent and utilities alone.
If you’re looking to hit a one-year savings goal, moving your entire home might be kind of extreme. You’ll get to the end of the year with your savings in hand and be stuck someplace you don’t necessarily want to live. More importantly, moving is typically expensive. Security deposits, broker fees, movers and general costs can eat up most of what you’d save in the short term.
Looking for a new place can’t hurt, and if the numbers work that’s great. Usually, though, this is better for achieving a long-term strategy than a shorter-term goal.
First things first, cut yourself some slack. If you’re struggling to save money it’s probably not because you’re a reckless urbanite with an avocado fetish. And it’s definitely not because you’ve afforded yourself the small pleasures of a trip to the movies or a favorite food. Building up your savings is an excellent goal and one that requires both long-term planning and a lifestyle-oriented approach. If you want to save $10,000 in a year, the best way to do that is by focusing on your monthly and weekly goals. And start building up from there.
Tips for Building Wealth
- Not sure what investments and strategies will help you meet your long-term goals? For a solid financial plan, consider speaking with a qualified financial advisor. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Use SmartAsset’s free investment calculator to get a good estimate of how to grow your money over time.
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