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U.S. News & World Report
September 25, 2022, 8:00 PM
The secret to saving money
Building an emergency fund, creating a nest egg for retirement and socking away money for your children’s college fund are fundamental steps to ensure long-term financial well-being. But how do you actually save money? It’s easy to say, “I’m going to save money,” but that’s an empty promise, without a plan.
We’re going to give you a plan. The secret to saving money, really, is to adopt several money-saving strategies and actually carry them out. Easier said than done, absolutely, but if you’re looking to pad your savings, try these expert-backed strategies.
1. Make a game out of saving.
Jacqueline Gilchrist, who manages the personal finance website, Mom Money Map, suggests employing a “no spend” challenge.
“A no spend challenge is when you don’t spend money for a certain period of time. It could be a weekend, a week or a month. You can set rules to spend only on essentials or other allowances,” she says.
By participating, “it forces you to be creative with what you have and learn new skills to avoid paying for a solution,” she says. “When you feel like you have no money to save, doing a no spend challenge can possibly open your eyes to more ways to save.”
2. Modify your income tax withholding.
If you receive a sizable tax refund every year, Elio Alfonso, an assistant professor of accounting at the University of Tampa, suggests that you look at adjusting your withholding allowances.
“Basically, you are giving the IRS an interest-free loan during the year for absolutely no reason,” Alfonso says. “You should have more of that money in your bank account earning interest and working for you.” If you opt to withhold less from your paycheck, just make sure that you put some of that money aside from each pay period to go into savings.
3. Tweak your retirement accounts.
It isn’t enough to regularly put money toward your retirement. You should also be looking at your retirement accounts at least once a year and seeing if you can improve how you’re saving for the future. For instance, do you have an employer-sponsored retirement plan?
“How much are you contributing? Are you contributing enough to get the full employer match? Can you increase the amount you are contributing?” asks Mark Williams, CEO of Brokers International, an insurance marketing organization that provides resources and support for agencies and financial professionals.
“This might seem like a no-brainer, but you might be surprised how many people put off saving for retirement,” Williams says, adding that the longer you put off saving for retirement, the more you miss out on the math magic of compound interest.
4. Pay off high-interest debt.
You can’t save money if you’re shoveling most of your money into interest.
“Pay off all high-interest debt such as credit card debt immediately. The high-interest charges are destructive to wealth accumulation,” says Barry Spencer, a co-founder of Wealth With No Regrets, a financial planning firm in Alpharetta, Georgia.
So what about the house? That’s debt. But it’s low-interest, and it appreciates in value over time, Spencer points out. So don’t worry about getting the house paid off early. And don’t make paying down debt your main goal. You still need to save, Spencer says.
“It’s a balancing act. You might be spending too much paying down debt each month if you don’t have enough money left over to meet your company’s 401(k) match. But at the same time, you need to allocate enough money toward debt payoff so you don’t prolong the time you’re paying interest on the debt,” Spencer says.
5. Identify areas where you can scale back.
“Take a look at your monthly expenses and see if there are any areas where you can reduce your spending,” says Joshua Zimmelman, president of Westwood Tax & Consulting LLC, in Long Island, New York. “For example, replace expensive dinners out with more home-cooked meals or cancel your cable in exchange for cheaper streaming services like Hulu or Netflix.”
Alternatively, you could also negotiate your cable bill or switch insurance providers and go with a cheaper option. “There are probably a lot of spending cuts you can make that will barely affect your day-to-day life but could save you hundreds of dollars a year,” Zimmelman says.
6. Pay your bills on time.
“Don’t waste money on late fees and penalties. Avoid late fees and interest charges on your credit cards, loans and other bills by always paying in full and on time,” Zimmelman says.
If you’re struggling to pay bills, you can get accustomed to a routine where you’re always paying bills late — and seeing that you paid at all is a victory. But take a look at how much you’re spending on late fees. For instance, late fees on credit cards can set you back as much as $40. If you pay your credit card late every month, aside from paying higher interest rates than you otherwise would on revolving debt, you could potentially spend $480 a year — in late fees.
7. Pay yourself first.
You hear this a lot. It’s still great advice, though.
“It can be incredibly difficult to save money when you are struggling to make ends meet, obviously. The way to be successful is to set a savings amount and consider it a bill, the same as any other bill like electricity or rent,” says Elizabeth Windisch, a certified financial planner at Aspen Wealth Management, which has locations in Colorado and Utah.
You have to consider what you put into savings as equally important as that electricity or rent payment, she says, “because you will need money to live off later, or an emergency will arrive.” She suggests putting away what you can, whether it’s $50 a month or $5. “Small amounts add up, and small amounts can be incrementally increased over time.”
8. Invest your raise.
If you receive a raise in the near future, put that extra money into a savings or retirement account.
Too often, “people move into a bigger apartment or buy a more expensive car to reward themselves for receiving the raise. What happens is they are unable to improve their financial condition because they spend everything they make,” says Robert Johnson, a professor of finance at the Heider College of Business at Creighton University in Omaha, Nebraska.
According to Johnson, “People would be well-advised to pay heed to Warren Buffett’s sage words: ‘Do not save what is left after spending; instead spend what is left after saving.’”
9. Use technology to save.
Johnson advises downloading the right financial apps to optimize savings.
“One popular app is called Acorn. You tie Acorn to your debit card, and it rounds the purchase up to the nearest dollar, effectively allowing you to invest your spare change,” Johnson says.
Here’s how it works: If you buy a latte that costs $4.44, when you use your debit card, $5 will be taken out of your account, with $4.44 going to the coffeehouse and $0.56 going into your investment account.
“This allows you to save money as you make everyday purchases and you don’t have to make the decision to invest the money,” he says.
10. Think about your financial future — a lot.
If there’s a secret to saving money, this one may be one of the most important of all. Treat yourself every once in awhile, by all means, but remember how overspending now will affect you later.
“One of the biggest behavioral biases that humans succumb to is the bias toward immediate gratification over delayed gratification,” Johnson says. “That is, our present selves tend to win over our future selves. It is very difficult for many people to imagine their future self and give up that vacation or new car today in lieu of having money to retire on in the distant future.”
Here’s what to do if you want to save money:
— Make a game out of saving.
— Modify your income tax withholding.
— Pay off high-interest debt.
— Tweak your retirement accounts.
— Invest your raise.
— Use technology to save.
— Identify areas where you can scale back.
— Pay your bills on time.
— Pay yourself first.
— Think about your financial future — a lot.
More from U.S. News
Things to Do When You’re Deep in Debt
How to Save Money When Grocery Shopping on a Budget
Most Common Budgeting Mistakes (and How to Fix Them)
How to Save Money: 10 Expert-Backed Ways originally appeared on usnews.com
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