A Complete Beginner's Guide to Saving Money (2024)

Saving money, or the "saving habit"—as American author Napoleon Hill put it many years ago—is the foundation of all financial success. Having money saved is what provides the means for you to take advantage of situations—whether it's going back to college, starting a new business, or buying shares of stock when the market crashes.

Saving Money vs. Investing

There is a huge difference between saving and investing. Both saving money and investing money have a place in your life, but they play very different roles.

How you handle these two things can have big implications for your financial success and stress level, and how wealthy you will ultimately become.It can even mean the difference between suffering through a recession or depression and sleeping soundly through the night, knowing that you have enough spare liquidity on hand.

Saving money is the process of parking cash in extremely safe accounts or securities that can be accessed or sold in a very short amount of time. Investing money, though, is the process of using your money or capital to buy an asset you think has a high probability of generating a safe and acceptable rate of return over time—even though it may decrease for years. Typically, this means stocks, bonds, and real estate.

Saving a Few Dollars Really Does Matter

Even if you are committed to saving money, you may find yourself falling into the trap of spending an extra $5 here, or $10 there, thinking, "It's not that much. I'll never miss it." Depending on your age, this could be a huge mistake.

One of the cornerstones of saving money is understanding the time value of money, that is, the concept that $1 today is more valuable than $1 a year from now. This money-saving tip could help you transform your balance sheet over the next 10 years as you free up cash to put into reserves.

The longer your money has to grow, the better.

How Much Money You Should Be Saving

Everyone knowsthat saving money should be a top priority, but how many people know the exact amount of money they should be saving? Most individuals mistakenly believe that saving more money is better, and saving less money is bad.

While that's true in a general sense, the amount of money you need to save depends on your needs, lifestyle preferences, and income. The amount you need to save and have available in the event of an emergency or golden opportunity could be very different from your friends, family, and neighbors. The general rule of thumb is to have three to six months of living expenses saved in an easily accessible account.

The Key to Saving Money Is To Pay Yourself First

The single best way to begin saving money is to use a technique called "pay yourself first." This technique has been proven time and again to influence people to change their behavior.

Simply put, it's establishing the discipline to put a certain amount of every paycheck into savings for your future before you pay any other bills. Most individuals choose a specific percentage to take out each month, like 10% for example.

Ways To Make Saving Money Easier

Sometimes, saving money can be difficult. Life often throws us curve balls, like unexpected emergencies or injuries, that tend to impede our savings schedule and routine.

If you are struggling along the path to financial freedom, there are ways to make saving and investing easier.

Try making a game out of finding ways to spend $100 less each month. For example, you can walk home rather than take the bus, or order water when out for a meal instead of tea or coffee.

Set up automatic transfers from your checking account into an investment or savings account, and do the same thing with your paycheck, or use an app, like Digit, to help you save automatically. The money you never "see" accumulates without it feeling like punishment.

Reward yourself, and set goals for what you'll do when you reach certain savings levels.

Ways To Generate Cash for Your Savings

If you want to know how to get rich, history has shown that investing in strong businesses is a good place to start. However, you must first have the money to invest in these businesses, which means saving.

To help you start saving money today, change your habits. One way to do so is to pay off your credit card balance monthly. It's important to do your research and find a card that awards you with points for purchases that can be used to earn cash back.

Consider getting a side hustle, adding a part-time job, or selling items for a little extra cash, and use that income for your investments. If you're creative or trying to declutter, there are plenty of online hubs for selling a variety of objects, including Etsy or Poshmark.

Paying Off Debt vs. Saving Money First

Debt is often a big hurdle to get over before you start truly saving money. If your debt is charging you 15% interest, and you don't have much cash left over after your expenses, it's easy to see why saving money can be a difficult task.

When deciding whether you should start saving money or paying down debt first, focus on paying off any high-interest credit card debt. If you can cover more than the minimum payment, that would be ideal.

It's also important to tackle high-interest-rate debt and to contribute to an emergency find simultaneously, so that when an emergency does happen, you won't have to rely on taking on more debt to fund that emergency or unexpected life event.

Store even $25 per month to begin establishing some emergency funds so you won't have to depend on using your credit card for all emergencies. Ideally, a better approach would be to consolidate your debt into a lower interest rate card or 0% balance transfer to help lower the payments and interest, allowing you to save more.

Low-interest debt can be worth paying off slowly so you can get started with putting money away with the potential to compound over the long term for your retirement.

How To Save the First $100,000

Billionaire investor Charlie Munger is known for saying that the most challenging hurdle to becoming financially independent is saving the first $100,000.

Once you cross that threshold, you have the money necessary to get bank loans to build a business or acquire real estate or make investments in the stock market that can bring a material change in your net worth, if things work out well.

Understand the tax code to get every last cent that is coming to you. Reinvest your dividends, and look for opportunities with low fees.

Where To Save Money for a Down Payment on a House

If you are saving money for a down payment on a house, you want to find safe places to invest it so the money will stay secure until you are ready to make a purchase.

FDIC-insured savings accounts and certificates of deposit are guaranteed by the government, so they are safe, but they won't generate a substantial return. Money market accounts at a bank are also safe for storage.

How Saving $19 Made Some Families $5 Million

In 1919, families who got their hands on $19 by saving money were able to buy a single share of a well-known, hugely successful blue-chip stock. Today, that single share, with dividends reinvested, is worth more than $5 million.

This was all possible due to the savings habit. No matter how small your savings account is now, with wise stewardship and disciplined cost-cutting, you can one day be financially secure.

Frequently Asked Questions (FAQs)

Should I buy savings bonds to save money?

U.S. savings bonds are among the safest places to save money if you don't need to touch it for at least one year, as each bond is guaranteed by the U.S. government to never lose money.

Is my money safe in an online savings account?

Online banking has become commonplace in the last several years, and it is a safe way to bank. To ensure that your bank is legitimate, make sure your deposits are insured by the Federal Deposit Insurance Corporation (FDIC) or by the National Credit Union Share Insurance Fund (NCUSIF) if you use a credit union.

How much of my income should I put towards savings?

One good rule of thumb is to try and save at least 20% of your income. If you follow the basic 50/30/20 rule of thumb, once you pay off your debts, you should strive for this number.

A Complete Beginner's Guide to Saving Money (2024)

FAQs

A Complete Beginner's Guide to Saving Money? ›

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals. Let's take a closer look at each category.

How should a beginner start saving money? ›

8 simple ways to save money
  1. Record your expenses. The first step to start saving money is figuring out how much you spend. ...
  2. Include saving in your budget. ...
  3. Find ways to cut spending. ...
  4. Determine your financial priorities. ...
  5. Pick the right tools. ...
  6. Make saving automatic.
  7. Watch your savings grow.

What is the 50 30 20 rule? ›

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals. Let's take a closer look at each category.

How to save $10,000 in a few months? ›

Here's how I did it & how you can do it, too.
  1. Set goals & practice visualization. ...
  2. Have an abundance mindset. ...
  3. Stop lying to yourself & making excuses. ...
  4. Cut out the excess. ...
  5. Make automatic deposits. ...
  6. Use Mint. ...
  7. Invest in long-term happiness. ...
  8. Use extra money as extra savings, not extra spending.

How to save $1,000 in 6 months? ›

To save $1,000 in 6 months, you need to calculate how much money you need to set aside each month. First, determine the number of months in 6 months, which is 6. So, mathematically, you will need to save approximately $167 each month to reach your goal of $1,000 in 6 months.

Is $5,000 enough for savings? ›

Saving $5,000 in an emergency fund can be enough for some people, but it is unlikely sufficient for a family. The amount you need in your emergency fund depends on your unique financial situation. Consider these rules of thumb and other factors to calculate your ideal emergency fund amount.

What is the 30 day rule? ›

The premise of the 30-day savings rule is straightforward: When faced with the temptation of an impulse purchase, wait 30 days before committing to the buy. During this time, take the opportunity to evaluate the necessity and impact of the purchase on your overall financial goals.

How do I divide my paycheck to save money? ›

This goes back to a popular budgeting rule that's referred to as the 50-30-20 strategy, which means you allocate 50% of your paycheck toward the things you need, 30% toward the things you want and 20% toward savings and investments.

How much should I be saving a month? ›

At least 20% of your income should go towards savings. Meanwhile, another 50% (maximum) should go toward necessities, while 30% goes toward discretionary items. This is called the 50/30/20 rule of thumb, and it provides a quick and easy way for you to budget your money.

How much do I need to save a month to get 20000? ›

“Saving $20,000 per year is about $1,667 per month or about $385 per week,” she said. “Thinking about it in smaller terms makes it less daunting of a goal.”

What happens if you save $100 dollars a month for 10 years? ›

How $100 a month can help make you wealthy
If you invest $100 a month for this many years......this is how much you'll end up with.
10$21,037.40
15$41,939.68
20$75,603.00
25$129,818.12
2 more rows
Oct 1, 2023

Is saving $1,000 a month realistic? ›

Saving money in this inflationary environment can be difficult, but it's not impossible. If you want to save $1,000 in a month, that can be within reach with a few straightforward steps. Financial experts recommend taking a few steps to get there.

How can I save $5,000 in 100 days? ›

The 100-envelope challenge is pretty straightforward: You take 100 envelopes, number each of them and then save the corresponding dollar amount in each envelope. For instance, you put $1 in “Envelope 1,” $2 in “Envelope 2,” and so on. By the end of 100 days, you'll have saved $5,050.

What if I save $100 a week for a year? ›

The first thing we need to know is how much $100 per week works out to on an annualized basis. There are 52 weeks in a year. That means that, after a full year of saving, $100 per week adds up to $5,200.

What is the $3 a week savings challenge? ›

The plan is refreshingly easy, even for the math-challenged: set aside $3 in the first week and put it into a savings account. Then add another $3 each week after, so $6 is saved in week two, $9 in week three, and so on. By week 26, when the final deposit of $78 is made, the savings will total $1,053.

Is $1,000 a month enough to live on after bills? ›

Bottom Line. Living on $1,000 per month is a challenge. From the high costs of housing, transportation and food, plus trying to keep your bills to a minimum, it would be difficult for anyone living alone to make this work. But with some creativity, roommates and strategy, you might be able to pull it off.

When saving money what should you save for first? ›

Saving for retirement and building an emergency fund should take priority over savings for a vacation. A good target is to put 5 – 10% of your take-home pay toward your savings goals. Saving even $25 or $50 a month is one small step you can take to help you get into the habit of paying yourself first.

How to save your first $1,000? ›

Dave Ramsey's 9 Ways To Save Your First $1,000 Fast
  1. Cancel Subscriptions. ...
  2. Bring Your Own Lunch. ...
  3. Avoid Coffee Out. ...
  4. Re-Sell Old Items. ...
  5. Shop at Cheaper Grocery Stores With Rewards Programs. ...
  6. Buy Generic. ...
  7. Join a Carpool. ...
  8. Pick Up a Side Hustle.
Dec 28, 2023

How can I save my first $100000 fast? ›

Five tips to help you save $100,000 faster
  1. Live below your means and cut frivolous spending. ...
  2. Be hyper-aware of every monthly expense and ruthlessly cut back to save faster. ...
  3. Pay down high-interest debts like credit cards first. ...
  4. Find the financial institution that will get you the highest interest rate.
Mar 27, 2024

How can I save $1000 fast? ›

11 Easy Ways to Save $1,000 in 30 Days
  1. Create a Budget. ...
  2. Automate Your Savings. ...
  3. Create a Savings Bingo Sheet. ...
  4. Negotiate Your Bills. ...
  5. Separate Wants From Needs. ...
  6. Plan Your Meals. ...
  7. Buy Generic Brands. ...
  8. Cancel Unnecessary Subscriptions.
Sep 26, 2023

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