Tips on How To Save Money

They say a penny saved is a penny earned, and anyone who has ever gone to great lengths to cut back on their spending will likely agree. When you’re exploring how to save money, you might have to cut back on small indulgences and sources of instant gratification for the benefit of the greater good. But while this is a challenging undertaking in the short term, saving money can be a gratifying accomplishment –– whether it’s to finance an exciting excursion, cut back on day-to-day costs, create an emergency fund to shield you from uncertainty, or simply reach a savings goal. 

No matter your motivation for saving money, you’ll need a strategy (or, in some cases, several) to accomplish this financial goal and reconfigure your spending habits in a lasting way. We uncover the best tips on how to save money, helping you cut back on spending to make room for the things in life that are truly worthwhile. Join us as we explore these strategies as well as some of the psychology behind spending.  

Why Is it Important to Save Money? 

If you’re reading this, you’re probably feeling the effects of inflation and the myriad pressures that come with elevated living costs. The good news is that you’re not alone and millions of Americans feel the same strain. The not-so-good news, however, is that these inflationary pressures will be sticking around for a while, even if this inflationary period seems to be cooling off.¹ So, for the time being, we’re all still painfully aware of the full value of our every hard-earned dollar –– and smarter spending can be one of the only ways to keep some extra cash in your pockets. 

Why is personal finance important?

Beyond getting the most out of your money, increasing savings now can save you even more money down the road. Many financial experts say that, in order to weather uncertain conditions, Americans should have enough money in an emergency fund to cover six months’ worth of expenses.² Without the insulation this emergency fund can provide, you may have to resort to credit cards or personal loans to make ends meet –– resulting in hefty interest charges, lasting impacts on your credit, or worse.   

It’s important to note that when we talk about how to start saving money, we’re not talking about saving all your money. Aside from pure necessities, like bills and groceries, a successful long-term savings plan will have some leniency, ensuring you can enjoy an occasional “treat” while still making progress toward your long-term goals. But even by cutting back slightly, tracking your spending via a well-crafted budget, and establishing a dedicated emergency fund, you’d be surprised how much bang for your buck you can achieve. 

How to Create a Budget

Creating a budget is a foundational step on a journey toward effective money management, but for some, budgeting can take on a negative connotation. When many people hear the word “budget” they think in terms of constricting their spending. In reality, budgeting is much less about constricting your spending and more about understanding where your money goes while assigning it a specific purpose so you can make good financial decisions. While there are countless types of budgets geared toward different budgeting styles, here is how to assemble a simple budget to begin your money-saving journey. 

• Lead with Intent: Before you begin crafting your personalized budget, you should establish the specific goal behind this undertaking. Are you hoping to curb bad spending habits altogether, or save for the next few months to afford a splurge-y purchase? By beginning the budgeting process with intent, and with a crystallized understanding of your personal finance goals, you can develop a rock-solid savings plan to help you get there.  

• Establish Your Income: With your “why” established, your next step is to calculate your total, post-tax monthly income. If you’re a salaried employee, this should be pretty easy –– how much did you make last month? But if you’re a freelancer, work on commission, or your income fluctuates from month to month, you’ll need to establish a working average. 

• Calculate Your Total Expenses: From your monthly income, you can now total your monthly expenses and subtract them from your income. This should include any regular expenses, like rent, utilities, gas, living expenses, and groceries, as well as variable costs –– like meals at restaurants, trips to the movies, or clothing purchases. While calculating your expenses down to an occasional $5 latte or $10 streaming subscription might feel trivial, precisely calculating your expenses will allow you to budget accurately. 

• Select Your Strategy: As mentioned above, there are countless budgeting strategies designed to help you accomplish your saving goals. One popular approach is the 50/30/20 “rule,” which dictates that you spend 50 percent of your income on needs, 30 percent on wants, and 20 percent on savings, fully funding your emergency account first.³ On the surface, this approach is simple, but look a bit closer and you’ll realize that it requires a fair amount of introspection. Honestly determine what expenses you consider to be “wants” versus “needs”, then begin to divert your expenses into these buckets. 

If your needs begin to spill over the 50 percent bucket, or pouring a whole 20 percent of your take-home pay into savings simply isn’t feasible, don’t fret –– these percentages are meant to be guidelines rather than hard limits. Just adjust where you need to according to your situation and your intention, and take it from there to work toward your personal savings goal. 

• Employ Budgeting Tools: In a world where cash is no longer king, it can be difficult to keep track of every single expenditure, especially when your spending plan is broken into three separate categories. Fortunately, there is no shortage of budgeting tools specifically designed to make saving money easier. Mint, for example, integrates with your bank account to give you a crystal clear overview of your spending by category, while PocketGuard offers a simple snapshot of your spending. These are just two of the many budgeting apps designed to make it easier to save money and help you accomplish your long-term goals more quickly.  

• Review and Adjust: Lastly, keep in mind that a budget is never completely finished. Your income, needs, spending habits, and personal finance goals will all likely change at some point, and you should evaluate your budget frequently to ensure you’re still on the right track. Establishing a clear vision at the beginning of this process will help keep you on course –– and can even act as a powerful reminder should you ever question why you started budgeting in the first place. 

When you’re considering how to spend less money and exploring ways to accomplish this feat, it all starts with a budget. For a more in-depth look at the importance of budgeting, and to find the right style of budget for you, check out our guide on how to start a budget. 

How to Determine What to Save On

So, you’ve clearly defined your intention, established your budget, and recognized that you need to cut back –– but where exactly do you start? While not all expenses are created equal, it can be difficult to determine exactly where to trim the fat. Fortunately, employing the 50/30/20 strategy outlined above, you can take much of the guesswork out of saving by identifying your needs versus wants. Day-to-day necessities for survival like living expenses, utilities, and groceries take clear precedence and should be allocated a largely consistent portion of your budget. With that said, even these can be negotiated, in some cases –– just don’t expect your savings to emerge from this category.   

Your wants, on the other hand, are not key to your survival and are therefore much more fungible. But even expenses in the same category do not all have the same value. While some expenses may directly contribute to your overall well-being or happiness, like a gym membership, or that we-made-it-to-Friday latte, others, like costly credit card interest fees, might be far less meaningful. When searching for places to save, look there first. 

Digging a bit deeper, you should also analyze areas where you have a natural tendency to overspend or where you can find cheaper alternatives. Not every subscription service on your device is worth your hard-earned money, impulse purchases are often short-sighted, and versions of your favorite restaurant meal can be made at home –– often for much cheaper. Consider the value these expenses add to your life, and be ready to make trade-offs where necessary. By distinguishing between what’s truly valuable and what’s merely a temporary desire, you can extend your every dollar without sacrificing fulfillment.

How to Reduce Spending Habits 

Finding tips on how to save money, at the heart of it, is a question of psychology. While implementing effective saving strategies can help you make an improvement in the short term, reducing spending habits over the long term involves mindfulness, honesty, and discipline. See, while our relationships with money may play out over impulse purchases and other unnecessary expenditures, they’re shaped primarily by our past experiences. Financial psychologists call these “money scripts”: patterns that influence our spending behaviors. Fortunately, these “scripts” can be rewritten.⁴  

When reducing spending habits for good, it’s not just about cutting back –– but about making smarter overall decisions in your day-to-day life. This begins with tracking your expenses meticulously, as this newfound awareness can be both an eye-opener and a catalyst for lasting change. Budgeting apps, like the ones listed above, can give you a clear picture of your month-to-month spending habits, but totaling your monthly expenses line by line can be equally impactful. 

Once you have an understanding of where your money goes, you can begin looking for opportunities to trim unnecessary costs, taking a psychological approach to saving. This can be as easy as avoiding impulse purchases by implementing a “waiting period” before non-essential purchases. (You might be surprised by just how many items lose their appeal after a day or two.) Additionally, for many, spending money is directly associated with having fun. So, by engaging in activities that don’t involve spending money –– like exercising, hiking, or taking up a free hobby –– you can shift your perspective and break your overspending habit once and for all.

However, it’s important to give yourself grace through all of this. Overspending tendencies run deep, and deprogramming these behaviors will take time. You may try and fail, but if you simply try again you’ll get closer to reclaiming control and achieving your savings goals. 

Final Thoughts on Saving Money from Truehold

As it turns out, saving money can be as simple as setting goals and creating a budget to help you meet them, or as complicated as completely rethinking the way you spend money (and the reasons you spend it the way you do.) No matter which money-saving strategy works for you, taking a conscious approach to saving money will position you better than you began. 

But there’s one strategy we have not yet mentioned –– mostly because it’s not a saving strategy at all. Rather, it’s a way to free up money you might have forgotten was there in the first place. Through Truehold’s sell and stay transaction, homeowners can cash out their home equity while continuing to live in their homes as renters, creating added flexibility in budgets and helping accomplish any number of financial goals.

Learn more about Truehold’s sell and stay transaction, or visit our content library for more ways to reclaim control of your finances.  

Sources:

1. CNBC. Inflation isn’t getting worse –– but prices will remain high. https://www.cnbc.com/2023/10/12/inflation-isnt-getting-worse-but-prices-will-remain-high.html

2. Nerdwallet. Emergency Fund Calculator: How Much Will Protect You? https://www.nerdwallet.com/article/banking/emergency-fund-calculator 

3. Investopedia. The 50/30/20 Budget Rule Explained With Examples. https://www.investopedia.com/ask/answers/022916/what-502030-budget-rule.asp 

4. CNET. How Our Brains Affect Our Saving Habits – and What Experts Say to Do About It. https://www.cnet.com/personal-finance/banking/advice/how-our-brains-affect-our-savings-habits-and-what-experts-say-to-do-about-it/