You probably know that instead of spending everything you make, you should be saving money for the future. But you probably also know that sometimes, that’s easier said than done.
If you’re having a hard time getting started saving money, we’ve got some steps to get you on a path to a more stable financial future.
5 Steps to Take to Start Saving for the Future
You might already know that money expert Clark Howard’s mantra is “Save more, spend less and avoid getting ripped off.”
While all of those things are tied together, there’s a reason that “save more” comes first. In order to put yourself in a good place financially, you have to hang on to more of that money you work so hard to make.
Here’s how to get started in five easy steps:
- Create a Budget
- Reduce Your Expenses
- Set Goals for Yourself
- Build an Emergency Fund
- Start Investing Your Savings
1. Create a Budget
Just as you wouldn’t start a journey to an unfamiliar place without some kind of map, you can’t really get to a place where you’re saving money without having an idea how to get there. That’s where creating a budget comes in.
A budget lets you see all the money you’re taking in (income) and all of the money that you’re spending (expenses) in one place.
If your expenses exceed your income, you will soon be in debt — if you’re not already. If your income and expenses are roughly the same each month, you are living paycheck-to-paycheck.
The only way to save money is to make sure that you are making more than you are spending each month, and creating a budget is the best way to ensure that.
If you are in debt, your budget should account for paying it off. It doesn’t usually make financial sense to “save” money when you’re really losing money every month in interest charges.
2. Reduce Your Expenses
Once you have your budget set up, you can start focusing on the “spend less” part of things by reducing your expenses. Take a look at all the things you’re spending money on each month and try to identify areas where you could cut costs.
While your largest monthly expense is likely your mortgage or rent, that’s a fixed cost unless you move, and that’s often an expensive proposition. So you should focus first on things you can control immediately.
Those would include things like groceries, home entertainment and your cell phone bill. We have some ideas about how you can spend less on all of those things:
- 20+ Ways to Save Money on Groceries
- How to Cut the Cord and Never Pay for Cable TV Again
- Best Cell Phone Plans and Deals Right Now
The key to reducing your expenses is to look at all of the options available to you in any given category and select the least expensive one that still makes sense for you.
Of course, at the same time you’re reducing expenses, you could also be looking for ways to make a little extra money on the side.
3. Set Goals for Yourself
Now that you’ve created your budget and hopefully cut your spending to the point that you’re actually spending less money than you’re making, it’s time to set some goals for yourself and create a plan for how you’re going to achieve them.
Your very first goal for yourself when you start saving money is to build an emergency fund, but we’ll get to that in a second.
Other goals you might set for yourself include:
- Paying off debt
- Saving enough to buy a car
- Saving enough for a down payment on a house
- Saving for retirement
Having a concrete goal or goals will help keep you on track with your savings. In fact, the closer you get to reaching your goal the more you may find yourself saving in order to make your dream a reality.
4. Build an Emergency Fund
As we mentioned above, the first thing you should do when you start saving is to build an emergency fund.
Your goal with the emergency fund is to have enough money to cover three to six months’ worth of expenses saved somewhere like a high-yield savings account.
You want this money to be easily accessible because it’s there to cover unexpected large expenses or a reduction in pay.
“Surveys show, no matter how the question is asked, that roughly half of Americans cannot handle a simple financial hiccup in their lives — some part of our car breaks, or something in your home needs repairing or replacing or whatever it is that’s a surprise — you don’t have anything to draw on,” Clark says. “That’s why having savings in an ‘oops fund’ or emergency fund is so important.”
If you’re not prepared for the unexpected, you might find yourself in a position where you’re forced to borrow money. You’ll then have to pay back that money — plus interest — which is going to slow down your overall savings plan.
5. Start Investing Your Savings
Now that you’ve created your budget, paid off your high-interest debt and built an emergency fund, the fun begins: You get to start investing your savings for the future.
Getting started with investing can be a little intimidating, but it doesn’t have to be. If your employer offers a 401(k) plan with a match, that’s a great place to start because that match is free money.
Saving money — whether it’s for unexpected expenses, an upcoming big purchase or your retirement years — takes some planning and good decision making on your part. But, it’s probably the most important thing you can do to give yourself peace of mind and a bright future.
The most important thing is to be level-headed about it. Follow the steps above in order and at a pace that’s comfortable for you.
More stories you might enjoy from Clark.com:
- Free Budget Worksheet: The CLARK Method for Creating a Budget
- How to Start Investing and Saving for Retirement
- How to Save Money: 35 Ways to Reduce Expenses
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