Are you actively trying to save more money, but struggling to do so? Do you feel like you’re doing a good job only to find a big, fat zero in your bank account at the end of the month?

I know the struggle. It’s tough and discouraging. I always think of it like a leaky bucket. There are a bunch of holes leaking water, and as soon as you patch one, another one forms that you have to plug up.

And yes, in this metaphor, water is money.

Saving money and building a sound budget is no easy task. But it can be done. Below we’ll walk through step by step how you can save more money and finally plug all the holes in your leaky bucket.

Get in the Money Saving Mindset

The first step to effectively save more money is to get in the right mindset.

And, to break things down even further, there are two steps to completing the first step of getting in the right mindset. Fun Stuff!

Step 1a.

This first step is somewhat obvious: you have to want to save more money.

If you’re strolling through life content with how much you are saving and how much you are spending, then there is no point in changing. Actually, why would you? You’re probably fine and can take the exit ramp off this article here.

Though some people want to save more, but don’t want to change anything. That’s a problem because obviously nothing will change until they change their mindset!

Step 1b.

Once you’ve decided to make a change though, there is more step: you need to start considering the value behind purchases you make.

In accounting terms (because everyone loves accounting terms), you need to audit yourself. To audit yourself you need to ask a bunch of questions like:

  • Was the $20 dinner at a restaurant better than the $8 one you could have cooked at home?
  • Did that new $500 TV perform that much better than your TV you already had?
  • Was the fancy apartment that cost $100 more to rent every month ($1,200 a year!) better than the alternative?

There are not very fun questions and certainly not ones you want to be asking and answering every day and with every purchase you make. But they are necessary at the beginning of this saving journey to help set a baseline. Once you start to understand what you value and “what is worth it,” the rest of the steps to saving money will become a lot easier.

Save in the Right Spots

Once you are in the right mindset, it’s time to actually start looking for places to save more money.

And no, the first thing to cut is not your daily cup of coffee. Contrary to what many money “experts” might recommend, I’d recommend starting with the big stuff, and then working back down to the small stuff later.

The three areas where people spend the most money, and therefore have the most room to save, are:

  1. Housing
  2. Transportation
  3. Food

Let’s dive into each below.

Housing

Some budgets recommend spending 35% of your income on housing. On one hand, that huge percentage makes sense because your house and apartment are likely the biggest things you own (or rent), literally.

Though, sticking to that strict percentage does not make sense to me. For one, if you are in San Francisco and make an average income, good luck getting away with only spending 35%. You’ll likely have to look elsewhere for savings.

On the flip side, if you live in the middle of South Dakota but make six figures running an online business (or whatever it is that you do), I doubt you need to spend even close to 35% of your income on housing.

The key here is to find the best place to live at the best price. Remember that saving $10 a month on rent or a mortgage is $120 a year. And $100 a month saved is $1,200.

Sorry for patronizing you with that simple math, but this can lead to huge reoccurring savings! Sometimes it’s worth point out the obvious.

Transportation

Not all of us can be Mr. Money Mustache and ride our bike around everywhere. However, all of us could save more money on transportation.

I like to say that a car is sometimes a necessity, but a new, fancy car is always a want.

If you need a car, the best thing you can do is get a reliable, affordable, used car to get you from point A to point B.

If you can avoid a car altogether, you save on so much more than just the car payment. You save on gas, insurance, parking, repairs, oil changes, windshield wiper fluid, car washes, and anything else associated with a car.

That is why biking (public transport, walking. rollerblading, or anything else) is a great alternative to cars. If you can swing it.

Food

Last but not least, food and drink are great places to save money.

Eating in is usually half the price of eating out, if not more. I know, grocery shopping and cooking takes time. And time is money.

But money is also money. So take a good hard look at how much time it would actually take to grocery shop and throw a frozen pizza in the oven before the next time you order out.

Can You Save Even More?

Outside of the big 3, there are a ton of places you can be saving money on a day to day basis. They will just come in smaller wins.

The small things you could save on include things like:

  • Your daily coffee.
  • A Friday afternoon beer.
  • Your mid-afternoon pick me up snack.
  • A pack of gum from the corner store.

Though, the problem with blindly cutting spending here is:

  1. The savings are small.
  2. These things usually bring a lot of joy!

The worst thing you can do is cut all the joy out of your life. After a while, you probably won’t notice your apartment is slightly smaller than another one you looked at it. But your friends (and you) will probably notice if you stop showing up to a happy hour every Friday!

So what you need to do is focus on value. Value, to me, looks like this:

  • Is that $3 cup of coffee worth $10 to you? Good, buy it.
  • Are those $10 pair of shorts on sale looking like $50 to you? Sounds like a good deal to me.

Obviously, you have to set a budget for these kinds of purchases so that you don’t get carried away. Whether that is a literal budget that is written down limiting you to spending $15 a month on coffee, or just a mental checklist in your head of how much you have been spending the last few days, just make sure to monitor it.

There are a ton of things I value more than their price, so I make sure to only buy the ones that I value significantly!

Make Your Money Work for You

Now that you are saving enough money, it’s time to make your money work for you.

The worst thing you can do is stick your money under the mattress. And the second worst thing you can do is stick your money in a freaking savings account paying 0.01% interest.

Find yourself a bank that treats you with respect.

The Best Option: High Yield Savings Account

In my opinion, the best option to store savings is a high yield savings account. This is just a savings account that pays you some interest on your money. Today, the best accounts are paying 2% interest or more.

That means on $1,000 saved, you’ll make $20 a year. Instead of the typical <$1.

While high yield savings accounts are great options for your savings, they are not your only banking option.

Other Options:

Certificate of Deposit: A Certificate of Deposit (CD) is an account with a fixed time period over which it pays higher than average interest rates. However, you cannot access your money during that time period without paying a penalty.

Money Market Account: A money market account is a bank account that typically requires a higher minimum balance, but in exchange, it offers better interest rates and check writing ability (something usually only available with checking accounts).

Bond Index fund: A bond index fund is a group of bonds that you can purchase. They typically offer higher returns, but are not FDIC insured and therefore much riskier when compared to the bank account alternatives.

Those are the best options that live on the safer side of the saving spectrum. If you go any further, you’ll end up investing in equities.

Make Your Money Work Even Harder for You

When you want to turn the savings amplifier to the second notch, you’ll turn to equity investing.

Before you do this, make sure you have enough savings in a safe account like the ones listed above. This will essentially be your emergency fund. Most people recommend at least 3 months of savings an emergency fund before turning to equity investing, but you can do more.

Honestly, save enough so that you can sleep soundly at night. Then start investing.

Index Investing Quick Guide

When you are ready to invest, investing in index funds is your best option.

Index funds are low-cost mutual funds and allow you to buy an established index (like the S&P 500) with one easy purchase. Essentially, you are buying a basket of stocks in one fund, but don’t have to pay the high fees usually associated with investing.

Arguably, one of the best index investing strategies is to build a 3 Fund Portfolio. This strategy involves just owning 3 investments:

  • Equity index fund
  • An international equity index fund
  • Bond fund

It’s simple, easy and effective.

Closing Thoughts on How to Save Money Money

If you’re looking to save more money, that’s already half the battle. From there, the steps to save more money take time but are achievable:

  1. Get in the right mindset and understand “value.”
  2. Focus on the big 3 (housing, transportation, and food).
  3. Then focus on the little things.
  4. Make your money work for you.
  5. Make your money work even harder!

Best of luck on your journey to save more money!

 

About the Author

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Kevin runs the personal finance website Just Start Investing, where he focuses on making investing easy. Just Start Investing has been featured on US News & World Report and Chime Bank, among other major publications for his easy-to-follow writing. Check out Just Start Investing to learn the simple strategies to start investing today, as well as ways to optimize your credit cards, banking and budget.

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