Everyone wants to save money. The more money you can save, the more you have for the future—whether you are saving for a trip, retirement, or just a rainy day. However, many Americans spend almost exactly as much as they earn.
According to a survey by Bankrate, 20 percent of Americans aren’t saving anything at all, and 65 percent are saving less than 10 percent of their income, which isn’t enough to retire on. A survey by CareerBuilder also determined that 78 percent of U.S. workers are living from paycheck-to-paycheck, including one in 10 who earn more than $100,000 per year.
If you want to have enough money for retirement or something special, such as the down payment on a house or a wedding, you have to break the cycle of spending everything you earn. You may also want to conserve your cash to pay off outstanding debt, such as credit card debt or student loans.
The best way to start saving more money is to take a hard look at your monthly expenses and see where you can cut back. You can always find a way to reduce spending and generate more for savings. It all starts with taking charge of your monthly bills, developing a household budget that works for you, and adopting new habits around spending and saving.
Saving Starts with a Household Budget
Everything starts with a household budget. You need to see where your money goes before you can determine where you can save.
Start by listing all of your income sources, and then list all of your expenses for the month. These expenses should include fixed costs, such as rent or mortgage, and variable costs, such as utilities and groceries. Use an average of your monthly variable costs. The objective is to account for all of your income and expenses. Try not to miss anything, or you will just be shortchanging yourself.
Now you need to determine the best way to maximize savings. Many personal finance experts recommend the 50-30-20 rule: 50 percent of your income for needs, 30 percent for wants, and 20 percent for savings. If you can manage to save 20 percent of your income, then you are well on your way to having a healthy nest egg, including retirement savings.
If you aren’t able to save 20 percent right now, find a way to start putting away one or two percent, and see if you can increase it the next month. To find more money to save, you have to scrub through your household budget to identify where you can cut costs. If you use the 50-30-20 rule, that leaves 30 percent of your expenses where you might be able to reduce your spending.
Where You Can Cut Expenses
Let’s look at some of the most common household expenses where there tends to be overspending:
1. Phone bill
Many people spend too much on cellular phone services, either by paying for services they never use or signing up for the wrong data or calling plan. Take a close look at your wireless phone bill. Are you using all of your data credits? Do you have rollover minutes that never get used? Contact your cellular service provider periodically to see if you can cut your service costs. Contract terms are constantly changing, and you can usually get a better deal.
It’s easy to waste water and electricity, which also wastes both energy and money. Cut your energy costs by lowering the thermostat and unplugging energy vampires that continually run in standby mode. Watching your water usage can also be a cost saver—think carefully about how often you are watering the lawn, doing small loads of laundry that could be combined, or taking extra long showers. You also can reduce water usage with low-flow fixtures and toilets.
3. Cable services
In the age of digital streaming, people are doubling up on subscription entertainment services. Do you need all of those premium channels? How many digital services like Netflix, Amazon Prime, and Hulu do you pay for? This is an area in which people tend to be surprised by how quickly these costs can add up over the course of a year.
4. Credit cards
According to The Balance, the average credit card debt per U.S. household is $8,286. That means most households are carrying credit card debt and paying unnecessary interest charges every month. If you can’t pay your credit card balance each month, consider switching to a lower interest card or opening a rewards card that gives you cash back. You can also call your credit card company to see if they can offer you better terms.
Pay with cash
Many people overspend because using debit and credit cards is easy. One way to reduce unnecessary spending and be more mindful of your spending is to pay with cash. If you have to pay cash for lunch or a cup of coffee, you may think twice. Is this expense really necessary?
These are just a few ways to start reducing everyday expenses. However, cutting costs is only the first step. You also have to funnel that “found money” into savings.
Move Found Money Into Savings
Calculate what you are saving by cutting your expenses, and plan to move that amount into a savings account. To make it easier, a recommended approach is to automate your savings by scheduling regular transfers from checking into savings.
You also should find other ways to save your pennies. Services like our Pocket Change Debit Savings Plan automatically add to your savings account by rounding up every debit card transaction and depositing the difference.
As your savings account grows, consider moving some of that surplus money into retirement savings. Putting your money into an individual retirement account (IRA) or certificate of deposit (CD) will help you earn higher interest rates. You should also consider investing your money as part of your retirement plan.
To help maximize your savings for maximum return, talk to your financial advisor or banker. They can help you develop a strategy to build your savings.