1. Record your expenses
The first step to start saving money is to figure out how much you spend. Keep track of all your expenses—that means every coffee, household item and cash tip.
2. Budget for savings
Once you have an idea of what you spend in a month, you can begin to organize your recorded expenses into a workable budget. Your budget should outline how your expenses measure up to your income—so you can plan your spending and limit overspending.
Tip: Aim to save 10 to 15 percent of your income.
3. Find ways you can cut your spending
If your expenses are so high that you can’t save as much as you’d like, it might be time to cut back. Identify nonessentials that you can spend less on, such as entertainment and dining out.
Tip: Give yourself a cooling off period. When tempted by a nonessential purchase, wait a few days. You may be glad you passed—or ready to save up for it.
4. Set savings goals
One of the best ways to save money is to set a goal. Start by thinking of what you might want to save for—perhaps you’re getting married, planning a vacation or saving for retirement. Figure out how much money you’ll need and how long it might take you to save it.
If you’re saving for retirement or your child’s education, consider putting that money into an investment account such as an IRA or 529 plan. While investments come with risks and can lose money, they also create the opportunity for growth when the market grows, and could be appropriate if you plan for an event far in advance.
Tip: Set a small, achievable short-term goal for something fun and big enough that you aren’t likely to have the cash on hand to pay for it, such as a new smartphone or holiday gifts. Reaching smaller goals—and enjoying the fun reward you’ve saved for—can give you a psychological boost that makes the payoff of saving more immediate and reinforces the habit.
5. Decide on your priorities
Learn how to prioritize your savings goals so you have a clear idea of where to start saving.
6. Make saving automatic
Almost all banks offer automated transfers between your checking and savings accounts. You can choose when, how much and where to transfer money or even split your direct deposit so a portion of every paycheck goes directly into your savings account.
7. Watch your savings grow
Review your budget and check your progress every month. Not only will this help you stick to your personal savings plan, but it also helps you identify and fix problems quickly. Understanding how to save money may even inspire you to find more ways to save and hit your goals faster.