The easiest way to get into the habit of saving money

The easiest way to get into the habit of saving money
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According to a recent survey by Bankrate, Americans are getting a little bit better at saving money.

In fact, only 24% of American adults now say they have no money saved for an emergency — the lowest level since polling began in 2011.

About 31% say they have a sufficient amount of money in emergency savings — enough cash to cover roughly three to six months worth of expenses (in case of an unexpected job loss or other reason you cannot work for a significant period of time). And that number is the highest it has ever been in the seven years Bankrate has been conducting the survey.

However, this also means about one-quarter of American adults have no money saved for an emergency, while two-thirds don’t have enough — which is a big problem.

So if you’re in either of these groups, it’s time to make some changes!

The risks of not saving enough money

Regardless of your income, there are always ways to reduce costs in order to put money away into savings.

One big problem many people face is the psychological barrier — prioritizing present needs and wants over future needs — no one expects an emergency to come up, so it’s easy to assume that there will always be more time to save later.

But this is a really bad mindset to have, for two reasons. First, time is money. The earlier you save, the more time your money has to grow. So even if you save a lot of money down the road, it still won’t be worth as much as the money you save now.

Second, emergencies do happen — and the reality is, if you don’t have the money to cover it, one unexpected bill can end up causing you major, long-term financial damage.

Read more: 3 things to never pay for with a credit card

In fact, it’s very often smaller, unexpected expenses that can cause you big problems — things like small car repairs, home maintenance and health-related bills. But if you aren’t prepared and have to cover it with a credit card, those small bills can quickly turn into big debt.

“Our analysis shows that most families will be faced with a significant and possibly destabilizing unexpected expense at some point, said Clinton Key, a researcher for Pew’s financial security and mobility project. “It’s critical for families to build emergency savings.”

In fact, more than 40% of Americans “either experienced a major unexpected expense over the past 12 months or had an immediate family member who did,” according to Sheyna Steiner,’s senior investing analyst. “This proves that an emergency savings cushion is more than just a personal finance cliché…”

Read more: How to increase your income by reducing expenses

The #1 way to get into the habit of saving money

Pay yourself first!

Regardless of how much money you make, if you don’t make saving part of your monthly budget, you will very likely reach the end of the month and realize you’ve spent what you had planned to save.

So do it before anything else. Figure out what you can afford to save each month (which may require reallocating the budget and/or reducing costs), and then have that money sent automatically into savings so you don’t give yourself the chance to spend it.

Bottom line: your financial well-being should be your #1 priority — and paying yourself first forces you to make that happen.

If your budget isn’t working, here’s a step-by-step guide on how to create and stick to a budget that works for you.

How to keep your savings on track

Once you get yourself into the habit of saving money, there are steps you can take to avoid big setbacks.

Don’t rely on credit cards

You should never use a credit card to cover the cost of an emergency. Credit cards often come with pretty high interest rates — so if you swipe a credit card to pay for an emergency, you will just end up facing a bigger bill down the road. And the bigger the bill, the longer it will probably take you to pay it off, which will then not only cost you more in interest, but could also damage your credit score.

One example is medical debt  — you don’t want to put an unexpected medical bill on a credit card. You’re much better off negotiating a payment plan with the hospital or provider — which you pay over time — than putting the bill on a credit card.

Another reason is because medical debt is now factored into your credit score differently than consumer debt, which is anything you put on a credit card. So an unpaid medical bill will no longer impact your credit score as severely as it would have in the past. And while ideally you don’t want any type of debt in your life, having a medical or hospital bill— instead of a credit card bill — is better for your long-term financial status.

Read more: 9 ways to find free money

Building an emergency savings fund

The best way to save for unexpected financial shocks is to have two separate emergency funds: a rainy day fund and an emergency fund.

  • A rainy day fund is money you might dip into every once in a while to cover an unexpected expense, like a medical bill.
  • An emergency fund is a bigger, longer-term savings fund. This money should be able to cover at least three to six months worth of living expenses in case you can’t work for a period of time, for whatever reason.

If you’re starting from scratch, these goals may seem impossible — but they aren’t. The best way to approach saving is to start with baby steps and then build up from there. Also, one important thing to remember about emergency savings is that the money should be easily accessible if you ever need it — like in a savings account. To help you get started on your savings, here are some tips, tricks and strategies you can put in place immediately.

4 ways to kickstart your savings

1. Reduce your expenses: There are tons of little ways to reduce your monthly expenses and still maintain your same lifestyle. From cable bills to everyday spending habits, here are some tips and tricks to immediately reduce your monthly expenses:

2. Increase your income: There are plenty of ways for pretty much anyone to earn extra cash. Bringing in some extra money each month can be a great way to fund your emergency savings without having to cut out other areas of your budget. Here are 29 easy ways to make extra cash each month.

3. Continue paying off debt: Don’t ignore the debt you already have — that will just end up costing you more and probably damage your credit score. Start with the credit card that has the highest interest rate and put as much money toward that debt as you can each month, while still setting some aside for your rainy day fund. Then once that card is paid off, move to the card with the next highest interest rate. For more guidance, see Clark’s guide to paying off credit card debt.

4. Keep it separate and make it automatic: Once you cut back on your spending and start to have some spare cash, it’s important to keep it in a safe place so you won’t spend it — because no matter how disciplined you are, if it’s there, it’s tempting. So if you don’t already have a savings account, open one. Then budget out how much extra money you will have each month and set up an automatic direct deposit from your paycheck for that amount. That way the money is put into savings before you have a chance to spend it.

Saving 101: How to get started & keep your savings on track

Alex Thomas Sadler About the author:
Alex Thomas Sadler is the Managing Editor of and Clark Howard Digital Products. Alex is also the host of Common Cents, a new series that makes money simple, so you can better understand and take control of your own financial life. Alex graduated from the University of Georgia with bachelor's degrees in ...Read more
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