About 8 minutes
 
 
Now that we’ve covered some basics, it’s time to get to the really exciting stuff. It’s time to talk saving strategy – and finding one that actually works for you. Because for most of us, building wealth starts with regularly setting money aside for our goals. And that’s what saving is all about.
 

Here’s what we cover in this guide

The challenge of saving
Setting a saving target
Make saving automatic
Reviewing your spending
Creating a budget
Thinking in terms of value
Needs vs wants
Reviewing your budget
Saving for fun things
 

The challenge of saving money

As you probably know, saving money doesn’t always come naturally. Not to get too off track here, but this tendency to spend rather than save may even be hardcoded into our DNA.
 
Think about it, for most of human existence, it didn’t really make sense to save. Our hunter-gatherer ancestors lived mostly nomadic lifestyles focusing on day-to-day survival needs. And this probably made it difficult, even disadvantageous, to acquire meaningful wealth.
 
Researchers have even documented that modern day hunter-gatherers tend to discount the future more, meaning they’re less inclined to save for tomorrow.
 

In other words, we simply may not be hardwired to save.

 
And yet, it’s no excuse for not saving today. In fact, it’s all the more reason why we need to be proactive with our saving strategies. If you’re reading this, chances are you don’t spend your waking hours foraging for food and evading large predatory animals. We live in a very different world than our ancestors, our situations have changed, and so must our habits.
 
The fact of the matter is, we all face countless opportunities every day to spend money on things we need, things we want, and things we think we need or want.
 
So finding ways to balance these needs, desires, and impulses will be essential for any successful saving strategy. We’ll cover a few commonly used techniques. But ultimately you’ll need to create a system that works for you. Don’t be afraid to try different approaches and see what works.
 

Setting a saving target

Aiming to save a specific percentage of your income is a great way to simplify your savings while also giving you a concrete, measurable goal to strive towards.
 
So what’s the right percentage?
 

A common rule of thumb is to try to put at least 20% of your after-tax income towards your financial priorities.

 
And no, by “financial priorities” we aren’t talking about shopping sprees and trips to Bali, as important as those may seem. But rather we mean things like growing your emergency fund, paying down debt, and investing for retirement – actions that grow your wealth over time.
 
However, while the 20% target is a handy guideline, it’s still just a rule of thumb. And no rule of thumb works for everyone in every situation.
 
So you’ll need to determine an amount that’s right for you.
 
If 20% simply seems too high for you right now, you can start with a smaller amount and then work your way up over time. Maybe aim for 1%, then 5%, then 10%, then 20%. After all, saving anything now is better than saving nothing. Or if you’re already comfortably putting away 20%, push yourself to save even more. The more you save, the sooner you’ll reach your goals.
 

Make saving automatic

Setting a saving target is great. But knowing that we should be saving money is not the same as actually doing it. We need to make sure we actually follow through.
 

An effective way to make sure you’re actually setting money aside is to automate your savings.

 
The basic idea with automation is to minimize the role of willpower in the saving equation. If we automatically direct money to our financial goals, we can (hopefully) bypass the possibility that we spend it first. There are a few simple ways we can do this.
 

Automating with direct deposit

One way to automate is to set up direct deposit so that your paycheck goes straight to your bank account. And most banks will allow you to direct your money into various sub-accounts so you can designate a portion of each paycheck to specific things like emergency savings, paying down debt, and general spending.
 

Automating with retirement accounts

You can also direct some of your money into a dedicated retirement account (like a 401(k) or IRA). This money will be even harder to spend since it’s essentially locked up until retirement. These accounts also offer tax-benefits and some employers will match a portion of your contributions.
 
And if you’re worried that sending too much of your income to your savings will put a strain on meeting day-to-day needs, you can always try it out and then adjust your contribution amounts later if you need to. You might even be surprised at how much you’re able to save.
 
If you want to learn more about automating your finances, we have you covered.
 

Review your spending habits

While automation can help you save more, it’s still important to know where you’re currently spending money. So you’ll want to review your credit card and bank account statements.
 
We know, this may not be particularly pleasant, especially if you’re feeling financially stretched. But we all need to start from a position of personal honesty. Try to remember, the goal here is to set yourself up for a better future, not to dwell on the past.
 
Schedule some personal time in your calendar to go over your accounts. And consider doing it once a month until you feel like you’re on the right track.
 
You don’t necessarily need to know where your money is ending up down to the last dollar, but you’ll want a rough idea of where it’s going.
 

Using a budget to maximize your savings

Once you’ve taken a look at where your money has been going, it’s time to think about where you want it to go. Which means it’s time to talk budgets.
 
But wait! Before you log out, turn off your computer, and throw it into a fire, we have something to tell you – budgeting doesn’t need to be painful.
 
We know that some of you love to track and monitor every last item of your expenses, which is great. Keep it up. But for most of us, this doesn’t come naturally, and trying to force this amount of discipline will likely have the same results as trying to adhere to a crash diet – ice cream binges and tearful nights. So if you’re looking for something simpler, you can try a simple budget to start.
 

Simple Budget

With a simple budget, the idea is to set a saving goal (say 10% or 20% of your after-tax income) and then not really worry too much about where you’re spending your money as long as you’re meeting your goal. You can adjust your spending if you’re falling short, but you don’t need to sweat the details.
 
The main benefit of a simple budget is that it doesn’t require all that much work on your part and can still be an effective way to save money. For some people, this approach will probably be enough. Who cares how you spend your money if you’re meeting your goals?
 
However, there is an obvious drawback to a simple budget – it won’t offer much insight into our spending habits. And that can be helpful if we want to optimize our savings.
 
This is where a more detailed budget comes in.
 

Detailed Budget

With a detailed budget, you, well, get into more details. You can track individual expenses or you can bucket expenses into groups or categories. This will help you see more specifically where you’re money is ending up and will make it easier to see where you can cut back if necessary.
 
We even have a budget calculator to help you get started.
 
There are also a number of free apps that will automatically track your spending for you and some banks now even offer their own tools to help too.
 

Thinking in terms of value

If you’ve ever read anything about personal finance before, you’ve probably heard people talk about the “Latte Factor” or some similar concept. Basically the idea is that if you cut out one pricey coffee every day, eventually these relatively small savings will add up to real money over time. It’s actually a decent point. Small-ish, frequent “splurges” certainly will add up.
 
On the other hand, some other self-proclaimed financial gurus will actually tell you to skip worrying about the small stuff and instead focus on the big items, like housing, healthcare and transportation. If you can spend slightly less on your apartment, you can make up for hundreds of lattes in one well-caffeinated swoop. Hm, also makes sense.
 
So who is right?
 
Well, in a way, they both are, to some extent. Those larger expenses, like housing, are usually harder to adjust in the near term, but will give you a bigger bang for your buck if you can bring them down. The small stuff matters too though. Frequent sneaky expenses can add up to serious money, so you don’t want them to pile up unnoticed.
 
Ultimately though, your spending habits should be dictated by value – what you get for what you pay, and what that’s worth to you.
 
Maybe those coffees are worth their weight in gold to you, and that’s perfectly fine. The key is to eliminate or reduce things that are costing more than they’re worth to you.
 
We’re constantly bombarded with media telling us what to like, how to dress, what to spend, so it’s easy to get swayed into spending money on things we don’t need or maybe don’t even want. It’s important to fight the urge, think for ourselves, and be deliberate with our spending.
 

Cutting back – needs versus wants

Cutting back on our costs is never much fun. But the reality is sometimes we have to, especially if we’re focused on saving more money.
 
So when you do, it can be helpful to break our expenses down into needs versus wants. What expenses are essential and which could you possibly do without?
 
We aren’t necessarily suggesting you cut out your wants entirely. But this framework can at least serve as a guideline for what you might be able to reduce or eliminate, especially if circumstances required a drastic change in your spending, like if you lose your job.
 

Hacking our plastic?

Also, if you’re really having trouble cutting back on impulse purchases, you could try paying with paper money for a while. We know, it’s super old school, and kind of weird, but research has actually shown that people tend to spend more when paying with plastic (credit and debit cards). And consumers may even be more emotionally attached to purchases made with cash or check than with cards. Yes, admittedly it may seem a little strange. But it’s worth getting creative and trying different approaches as you work on ways to boost your savings.
 

Be prepared to periodically review and adjust your budget

Creating a budget is not a one time event. You’ll want to periodically review it to see if you’re meeting your goals or falling short, then adjust as needed.
 
If you take the more detailed approach of tracking individual expenses, you may want to be somewhat flexible with your particular expenses. It’s likely that in some months you’ll be over budget on some things, and that’s not the end of the world. Try to make it up on other expenses or in the next month if possible.
 
It’s also important to prepare for major life events that will impact your financial situation. Some changes, like paying off a loan or getting a promotion, might tempt you to increase your spending, but don’t lose sight of your goals. Other changes, like buying a home or having children, can have the opposite effect, so you’ll need to prepare for these events and adjust your spending plan as needed.
 

And remember to save for the fun stuff too!

Having a saving strategy shouldn’t just be about your necessities. So it’s important to include the exciting stuff too, like vacations, concerts, dinners with friends, whatever you’re into. What’s the point of doing all of this if you can’t also enjoy your money anyway? And saving for the fun stuff might just make the difference between sticking with your plan and giving up.
 
Of course we aren’t suggesting you splurge all the time. But it’s important to find a balance between those adultish financial habits and living an enjoyable life.
 
 

Key Take-Aways

1) Put some of your income towards financial priorities. You can shoot for 20%, but if that’s too much, start smaller and build your way up.

2) Make saving money automatic with direct deposit and specific sub-accounts.

3) With a simple budget, you set a saving target and don’t focus on the details as long as you’re meeting it. With a detailed budget, you track individual expenses or expense categories and adjust as necessary.

4) When you review your expenses, focus on the size, the value, and whether or not it’s essential or a luxury.

5) Monitor and adjust your spending over time and keep up with life changes.