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How to Start Saving Money


Written by Melanie Pincus | Edited by Ali Cybulski | Published on 01/15/2025

Learning how to save money is simple in theory — just spend less than you earn. In practice, though, the most effective ways to save money require a little more organization and thought than that. As long as you’re open to making small changes to get started, you’ll be making progress on your savings goals in no time.

7 ways to save money

  1. Create a budget.
  2. Identify expenses to cut.
  3. Pay down debt.
  4. Build an emergency fund.
  5. Set other savings goals.
  6. Select accounts for your savings.
  7. Put your knowledge into action.

1. Create a budget

A budget is a means of organizing your earnings and expenses. With an effective budget, you can keep track of where your money is going and more easily pursue savings goals.

Multiple budgeting methods exist — choose what feels most intuitive to you. Options include:

  • 50/20/30 strategy: Start by finding your net income, which is your total pay minus taxes and any other deductions. Then dedicate 50% of that amount to necessary expenses; 20% to savings or other financial goals; and 30% to optional purchases, such as meals out, movies and vacations.
  • “Pay yourself first” approach: Save 20% of your paycheck before you do anything else with the funds. You can accomplish this goal by setting up automatic transfers from your checking account to your savings account. Or you can move the money manually, as long as you’re confident you’ll have the discipline to do it.
  • Envelope budgeting plan: Split your expenses into categories and put cash in an envelope for each category. You should have envelopes for each necessary expense, along with one for savings and ones for more flexible categories, such as entertainment. If you don’t want to use cash and envelopes, you can instead use apps or spreadsheets to set up a similar system.

2. Identify expenses to cut

Consider which of your expenses are needs and which are wants. Needs are essential to everyday life, such as groceries and mortgage or rent payments. Wants are nice to have, but you can get by without them. Examples include money spent on hobbies, subscriptions and luxury items.

Where to cut depends on your financial situation. Some people may be able to reduce their housing expenses by moving in with roommates or downsizing to a smaller space, for instance.

The easiest cuts will likely come from wants. “Easiest” is a relative term, though.

Deciding to spend less on birthday gifts or to miss out on events with friends won’t necessarily be simple. But making these challenging choices can help you achieve your goals.

3. Pay down debt

Regular debt payments should be one of the necessary expenses in your budget. You may want to take a more aggressive approach to clearing any high-interest balances, such as those on credit cards. Paying off this kind of debt can free up money that you can redirect to your savings goals.

Let’s say you have a $5,000 balance on a credit card with a 24% interest rate. If you’re putting $150 per month toward this debt, you’ll need more than four years to clear the balance and pay $3,000-plus in interest in that time. If you’re able to up your contribution by $50 a month, you’ll save yourself 20 months and more than $1,000 in interest payments.

Debts with lower rates, such as mortgages, don’t need to be prioritized for complete payoffs in the same way.

4. Build an emergency fund

Now that you’ve identified ways to increase the money available to you for saving, it’s time to set savings goals.

One of your top priorities should be establishing an emergency fund — a cash reserve you can turn to in case of a job loss, sudden medical expense or other unexpected life event.

You’ll likely see three to six months' worth of living expenses recommended as the ideal amount for your emergency fund. If this is out of reach for you right now, that’s OK. Having even a little set aside could be the difference between taking on debt and covering a crisis without derailing your finances.

The Consumer Financial Protection Bureau advises savers to think carefully about the kinds of unplanned expenses that tend to come up for them. You can use this information to choose the amount you want in your fund.

5. Set other savings goals.

If you’re thinking about how to start saving money, you likely have some financial goals in mind. Once you’ve tackled your emergency fund, you can start to work on these in earnest.

Here are some savings goals you might be considering and some tips on approaching them:

  • Build a retirement fund. Generally, setting aside 10% to 15% of your income — including any employer match — can help you get set up for retirement. Factors such as your age and how much you have saved already will affect your approach.
  • Create a child’s college fund. If you have a sense for how much your child’s education will cost, or how much you want to contribute, you can build a plan around that number. Look into the specialized saving account options available for education, including state 529 plans and Coverdell education savings accounts
  • Achieve short-term goals. Unlike with retirement or college savings, you may not have many years to save for an important trip or home improvement. As a result, you may need to set more money aside on a monthly basis to achieve these goals, even though the total amount you’re hoping to save is likely smaller.

6. Select accounts for your savings.

At this point, you’ve probably defined your savings goals and know how much you can realistically save. You could keep all of that cash parked in a checking account, but you shouldn’t.

For one thing, money in a checking account typically earns little to no interest, so you’re leaving money on the table. Plus, certain savings goals, namely education and retirement, come with specialized savings options that often have tax advantages.

The best savings account for you depends on the purpose of your savings:

  • High-yield savings accounts: High-yield savings accounts often earn interest rates north of 4%, while standard savings accounts are likely to net you less than 1%. These types of accounts are typically found online. Generally, a high-yield savings account is a solid place to sock your emergency fund and money for any other savings goals you need to access easily.
  • Certificates of deposit (CDs): CDs also offer competitive interest rates, often above 4%. Your CD will pay this set APY for a specified term, during which you can’t access the funds, unless you’re willing to pay a penalty. As a result, you shouldn’t use a CD for money you might need sooner than the end of the term.
  • Individual retirement accounts (IRAs): You can open an IRA regardless of whether your employer offers a retirement plan.

You’re likely to end up with more than one type of savings account — at least one for retirement and one for your emergency fund, for example. But consider whether more than that would be useful.

For instance, you could open separate accounts dedicated to distinct savings goals, if this would help you stay organized. You could also invest in a CD for medium-term savings goals and use your high-yield savings account for immediate needs.

7. Put your knowledge into action.

Knowing how to save money isn’t the same as actually saving it. Take it one step at a time. Start by building your budget and taking time to evaluate it, and move on from there. Soon, you’ll be able to save each month as part of your regular routine.

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