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How to save money

Key takeaways

  • Saving money is key to reaching almost any financial goal.
  • To save more, start by identifying your current income and expenses.
  • Set specific, realistic savings goals, and plan to hit them by cutting costs or increasing your income.

Sometimes it can be hard to figure out the best way to save money. These steps can help you cut through the financial noise in your life and start to save money, whether it's for a short-term goal, like a vacation, or a longer-term one, like paying for a child's education, or your retirement.

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1. Take your financial temperature

Knowing what comes in and what goes out of your bank account every month is the first step in saving money. If you haven't already—or it's been a while—sit down with your paystubs and bills for the month. This will give you the chance to see how much you're spending on essentials (think: housing costs, groceries, insurance, debt repayment) versus what you pay for nice-to-haves, like eating out or entertainment.

The second category of expenses (the nice-to-have catagory) is particularly important to review, as they are typically easiest to cut to help increase your savings. But you can save on essentials too with more effort, such as downsizing your housing or zeroing out high-interest debt. (See our full list of tips and tricks in step 6.)

You'll also want to keep track of what you're already saving, whether it's for an emergency fund, retirement, or other goals.

2. Decide on a budget

The dreaded B word. While many people dislike micromanaging their finances, anyone who wants to save money must mind their budget. If you don't have a budget that works for you, it's time to find one. Fidelity's suggests following the 50/15/5 rule, which means allotting 50% of your income for necessary expenses, 15% for retirement (including employer match), and 5% for short-term savings, like an emergency fund. You're free to spend the remaining amount on whatever you'd like, including other financial goals.

3. Name and price your savings goals

Next, figure out what you're asking for, how much you want to save, and when you need the money. When it comes to setting and achieving goals, psychology tells us it's helpful to be as specific and concrete as possible.1 For example, you're more likely to reach a goal of saving $2,000 for a trip to Tulum in a year than you are to reach one that is simply "save money." The latter may feel overly vague and without any concrete end, which can make it harder to work toward.

Similarly, aim to keep your savings goals ambitious but not unrealistic. That doesn't mean you can't tackle big-ticket items, but you may want to break your biggest ones into subgoals that you can more easily accomplish within a shorter time frame.

For instance, instead of setting the goal of saving $100,000 for a child's college fund, which can feel overwhelming, you might instead set a goal to save about $500 a month. After consistently saving for 18 years, you could have $108,000 ($500 × 12 months × 18 years)—and many mini victories under your belt. This may help keep you more motivated than you'd feel slowly chipping away at a massive balance.

Once you settle on your savings targets, you can build these into your budget to chart a course to reaching them.

4. Be intentional about your accounts and investments

Some people may find it helpful to bucket their savings—or set up separate accounts for each savings goal. For example, you may be more motivated to keep saving when you see the balance of your vacation fund inching toward your ultimate goal each month. Separating your savings from your checking account could also keep you from "accidentally" spending the money on something else and derailing your progress.

Having separate accounts for your savings goals also allows you to pick a variety of accounts for your specific goal or timeline. For short-term goals—those you plan to accomplish within 3 years—you may want to stick with cash held in checking, regular savings, or high-yield savings accounts and cash-like investments, such as certificates of deposit (CDs) or money market funds.

You could lose money by investing in a money market fund. An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Before investing, always read a money market fund’s prospectus for policies specific to that fund.
For savings goals that are further out, you can consider holding a portion of your savings in investment accounts based on your timeline and willingness to take on risk. Generally, the longer you have until your deadline, the more risk you may feel comfortable taking on as your investments have more time to potentially recover from losses. If you aren't sure what the right split is for you, consider reaching out to a financial professional.

5. Automate your savings

With all the other things on your money to-do list, it can be easy to let savings fall through the cracks. Enter: automation.

Based on your other financial goals and commitments, determine how much you want to allocate to savings each month and set up an automatic transfer from your checking account to each savings account you've set up. Another option is to check whether your employer lets you set up multiple direct deposits, so that some money can funnel straight to your savings. Out of sight, out of mind—and out of your wallet.

6. Check out our top ways to save

You don't have to be an extreme couponer to hit your savings goals. (But if that's your thing, go for it.) Check out ways to save more money in our collection of articles:

7. Level up your income

While you might find it easy to eliminate your more lavish spending habits, you'll probably reach a point where you can't cut away any more. That's when it's time to consider raising your income. You may think about supplementing with a side gig or exploring passive income opportunities. And if it's been a while since your last raise at work, it may be time to negotiate for what you're worth.

8. Track your progress

Reaching a savings goal usually doesn't happen overnight. You'll want to check in on your progress regularly to make sure you're staying on track, and assess how new developments in your personal and financial life may impact you moving forward.

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1. "Goal setting and task performance: 1969-1980," Psychological Bulletin, pp.125-152, https://psycnet.apa.org/record/1981-27276-00.

This information is intended to be educational and is not tailored to the investment needs of any specific investor.

Investing involves risk, including risk of loss.

Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.

Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. Your ability to sell a CD on the secondary market is subject to market conditions. If your CD has a step rate, the interest rate may be higher or lower than prevailing market rates. The initial rate on a step-rate CD is not the yield to maturity. If your CD has a call provision, which many step-rate CDs do, the decision to call the CD is at the issuer's sole discretion. Also, if the issuer calls the CD, you may obtain a less favorable interest rate upon reinvestment of your funds. Fidelity makes no judgment as to the creditworthiness of the issuing institution.

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