Everyone knows they should save more money. But figuring out how to save money is often easier said than done. There are so many rules and methods about the best way to do it that it can easily get overwhelming.
Sometimes, the hardest thing is just getting started. These 10 tips will help you dive in and jump-start your savings.
It's hard to know how you can save money each month if you don't know where your money is going. By tracking your spending and expenses, you can easily see what categories you're spending in and where you could cut back. Budgeting doesn't have to be hard or time-consuming if you use these tips.
Your budgeting could be as easy as using a spreadsheet, with income in one column and spending in another. Each time you get paid, make a purchase, or pay a bill, log it in the appropriate place. Some budgeting apps can automatically pull information from your bank account and credit cards, giving you a clear view of all your spending activity in one place.
After tracking your spending for a month, you can categorize your expenses to gain valuable insights into your spending habits. How much money do you spend dining out? How much do you spend on streaming services? This allows you to identify areas where you might be overspending so you can adjust your budget.
Budgeting is never a one-and-done task. It's an ongoing process that changes as your life circumstances change. Let's say you started your budgeting journey when your main goal was to get out of debt. Once you've achieved that goal, your budget should reflect it. You can then prioritize a new goal or allocate a higher dollar amount to saving and investing.
Saving money without a clear purpose makes it hard to stay on track and measure progress. By assigning specific goals to your savings, you create a tangible target to work toward. Realistic, achievable goals will keep you motivated and make saving money a more rewarding experience.
Because life is a balance between short-, mid-, and long-term goals, it's helpful to categorize your savings accordingly. By structuring your savings this way, you can also use the most appropriate investment strategy for each time frame.
Just as it's important to set realistic, achievable goals, it's also important to set realistic deadlines for those goals. When setting a target date, work backward to determine how much you need to save per month to hit your goals. For example, if you're planning next year's vacation and think it'll cost $8,000, break it up into 12 monthly installments of $667.
Some goals might feel so big that you may find it hard to stay motivated along the way. Break down these goals into incremental milestones along the way and celebrate when you hit them. If you're saving for a $30,000 down payment on a house, celebrate your wins and treat yourself when you hit the $5,000, $10,000, and $20,000 marks.
The physical act of writing out your savings goals can help increase the odds you'll achieve them. Posting them somewhere visible can serve as a constant reminder of what you're working toward. Whether it's on your fridge or bathroom mirror, having your goals front and center makes them hard to ignore.
Without a specific amount in mind, it's easy for savings to become an afterthought. But how much of your paycheck should you save? One classic rule of thumb is to save 10%–20% of your net monthly income. But your ideal percentage can vary based on your unique goals and circumstances.
If you live in an expensive city, rent and groceries may eat up a big piece of your paycheck, making it difficult to hit the 20% mark. Don't get discouraged. The important thing is to start saving, no matter how little, and build on your successes.
To determine how much you can save, start by listing your essential monthly expenses like your housing payment, utilities, groceries, transportation, debts, and insurance. Then deduct the total from your take-home pay. The remaining amount is what you can potentially save each month. From there, figure out how much to allocate to your different goals.
If you're not a fan of complicated budgeting, consider the 50/30/20 rule, which simplifies the budgeting process. It works like this:
Let's say your monthly after-tax income is $8,000. Following the 50/30/20 rule, $4,000 would go to fixed expenses, $2,400 for things you want, and $1,600 for savings. By using this budgeting method, you could potentially save $19,200 in one year.
Start by determining how much you need to save for a specific goal. Then divide that dollar amount by the deadline you've given yourself. For example, if you need $40,000 for a down payment on a home in 4 years (48 months), you'll need to save approximately $833 per month ($40,000/48).
Budgeting gets a bad rap, but it's an indispensable tool that can help you see how you can save money and where to trim to make it possible.
There are many budgeting strategies out there. Experiment with different approaches until you find the right system that works for your lifestyle and personality.
Prioritizing savings from the start makes it a nonnegotiable habit. Rather than trying to save what's left over after expenses, treat savings like any other monthly "bill." When creating your budget, make a line item for savings that'll automatically contribute toward your savings goals each month, like paying rent and buying groceries.
With zero-based budgeting, your total income for the month minus expenses should equal zero. In other words, all your income should be accounted for, going either toward expenses, debt, investments, or savings.
Zero-based budgeting prevents money from slipping through the cracks by assigning a job for every dollar.
Making progress on saving doesn't have to entail big, sweeping restrictions on your spending. Even small changes can have big results. For instance, if you packed your lunch from home just a few times a week, you could free up hundreds of dollars each month, money you could direct toward savings. Other ways to save include canceling subscriptions you never use, swapping a pricey gym membership for a home setup, or using the library instead of buying books.
Make sure to track how much money you're saving with these small changes so you can see how quickly they add up.
One of the easiest ways to save more money is to cut back on your current spending. Every dollar you don't spend is a dollar you can save. Consider some of these ways to free up money for savings.
While inflation has impacted all areas of your budget, food prices have risen much more than other categories—23% between April 2020 and April 2024.1 Meal planning can help you reduce last-minute takeout orders and impulse grocery buys by giving you a weekly road map of your meals. To save time and money, try cooking larger meals so you can pack the leftovers for lunches. Finally, limit dining out to preplanned treats, not everyday splurges.
Recurring monthly expenses are easy to overlook, but they add up. In fact, consumers underestimate by $133 a month how much they're spending on subscriptions, a recent study found.2 Each year, do a full audit of your streaming services, gym memberships, software licenses, and other subscription services. Cancel any you aren't actively using or no longer need. Also, call your utility and mobile phone companies to try and negotiate better rates. These companies may be willing to give you a better deal to keep your business—but you'll only find out if you ask.
Impulse purchases provide short-term gratification but little long-term joy. They can also put a hole in your budget. Before any nonessential purchase, impose a 30-day waiting period on yourself. If after 30 days you still want the item, buy it. More likely, you'll lose interest.
Is it better to pay off debt or save? While saving for the future is ideal, it probably makes sense to prioritize paying off any high-interest debt first. High-interest debt like credit card balances or personal loans can feel like an anchor weighing down your savings efforts. Once you pay off your high-interest debt, the money you're spending on fees and interest could be going toward your savings instead.
Today's credit card interest rates can often be as high as 20%–25%, causing balances to rapidly accumulate interest, making it increasingly difficult to pay off debt. Prioritize debt repayment so you can reallocate funds toward savings sooner. Consider paying off your debts with these approaches:
If you have federal student loans, consider an income-driven repayment (IDR) plan, which can help make student loan debt more manageable by reducing your monthly payments. IDR plans such as Pay As You Earn (PAYE) and Saving on a Valuable Education (SAVE) cap payments at a percentage of your discretionary income. They can create some breathing room in your budget if you're having trouble making your payments on the standard 10-year plan. While payments are lower with IDR plans, you could end up paying more interest over the long term, which is a factor you may want to consider before deciding.
While mortgage rates have risen substantially in recent years, it's still important to periodically review whether refinancing makes sense. If your existing mortgage is well above current rates, refinancing may save you thousands of dollars over the remaining life of the loan. But if rates aren't significantly lower than your current mortgage, you're unlikely to realize any substantial savings to justify the closing costs of a refi. The key is to check rates regularly in case they fall.
One of the most effective ways to ensure you consistently save is to adopt a "pay yourself first" mentality. Before the money ever hits your checking account, set up automatic transfers into your savings, investment accounts, retirement, and emergency savings. By removing the temptation to spend it, you'll quickly adapt to living off the remaining funds without noticing the savings contribution.
Configure your bank accounts to sweep money automatically from your checking account into a dedicated savings account each time you get paid. Treating these savings transfers as a recurring bill to yourself makes it nonnegotiable.
Signing up for your company's 401(k), 403(b), or other retirement plan allows you to automatically funnel money directly from your paycheck into your investments. If you use tax-deductible accounts, you can reduce your taxable income for the year in addition to building your savings. Contribute at least enough to get your employer's match.
If you have a high-deductible health insurance plan, you may be eligible for a Health Savings Account (HSA), which allows you to make tax-deductible contributions, receive tax-free growth, and make tax-free withdrawals for qualified medical expenses.3 HSAs can also be used as an additional retirement fund because any money in the account can be used for any purpose without penalty once you reach 65. Meanwhile, a Flexible Spending Account (FSA) lets you set aside money for medical costs through pre-tax payroll deductions.
Where you keep your hard-earned money is just as important as how much you save. If you park your cash in a traditional checking or savings account, you could be missing out on higher interest rates. For example, a money market fund earning 5% on $1,000 will earn $50 more than a non-interest-bearing account.
Explore cash investments to earn higher interest rates so your money can compound faster.
For short-term savings you need within the next 3 years, consider using high-yield savings accounts or certificates of deposit (CDs) to potentially earn substantially more than regular savings. Keep in mind, however, that some high-yield savings accounts and CDs offer comparable yields, but they may require high deposit minimums over time.
Vanguard offers brokered CDs, which may offer greater flexibility than traditional bank CDs.
Having distinct savings accounts for different goals makes it easier to work toward those goals. Automatically transfer money from each paycheck into the respective accounts so you aren't tempted to spend money you've earmarked for other priorities.
For savings you intend to use in the near future, you might consider a money market fund. Money market funds invest in short-term, high-quality fixed-income securities and cash equivalents with a focus on capital preservation and liquidity.
Vanguard's money market funds have a history of strong performance—100% outperformed their peer-group averages over the last 10 years.4 While money market funds don't have FDIC insurance, they may be protected by the Securities Investor Protection Corporation (SIPC), and may offer a potentially attractive yield that can help your savings grow faster than they would in a typical savings account.
In addition to how much you save, how you invest your money also matters. While asset allocation depends on individual goals, diversifying across stocks, bonds, and cash can help you manage risk and capitalize on different market opportunities over time. How much you invest is based on your needs for retirement or other goals.
Many financial professionals recommend investing at least 10% of your gross income in tax-advantaged retirement accounts to potentially replace 70%–80% of your preretirement income.
Even if you can't max out your 401(k) plan contribution, aim to contribute at least enough to get your employer's full matching amount. Some companies match 100% of your contribution (up to a certain amount) and some match only a part. For example, your company may match 50% of your contribution up to 6% of your salary. In other words, if you earn $100,000 annually, they'd match the first $6,000 you contribute with an additional $3,000.
This is free money and can significantly boost your retirement savings over time. By not taking advantage of employer match, you're leaving a valuable company benefit on the table.
Tax-advantaged retirement accounts, such as 401(k) or 403(b) plans, traditional individual retirement accounts (IRAs), and Roth IRAs help you grow your long-term savings while saving on taxes. Contributions to traditional 401(k) plans and IRAs can be tax-deductible, which reduces your taxable income today. Or make contributions to Roth IRAs and Roth 401(k) plans using after-tax money in exchange for tax-free growth and withdrawals in retirement.5
In 2024, the maximum contribution allowed to 401(k)s or 403(b)s is $23,000 and to IRAs is $7,000. If you're 50 or over, those limits increase to $30,500 and $8,000, respectively.
Low-cost index funds and exchange-traded funds (ETFs) offer a simple and cost-effective way to diversify your market exposure. Rather than picking individual stocks, these funds track major indexes like the Standard & Poor's 500, giving you exposure to hundreds (or even thousands) of companies in different sectors with just one purchase. With the proliferation of index funds and ETFs, it's easier than ever to build a diversified portfolio of stocks, bonds, domestic and international holdings with these low-cost investments.
Consider this: The average investor pays just 0.05% in fees per year to invest in a domestic stock fund, but 0.42% to invest in actively managed funds, according to the Investment Company Institute, which tracks the mutual fund industry.6 Similarly, the average investor in an index ETF pays 0.15% in fees per year, but those in actively managed ETFs pay 0.43%.
While many people successfully invest on their own, some people may prefer working with a financial advisor who can give them professional guidance tailored to their specific situation. If you're looking for personalized advice at a lower cost, automated portfolio management may offer the support you need to achieve your financial goals.
Investing for long-term goals like retirement is crucial, but it's also important to keep some of your savings accessible in cash vehicles for near-term needs and emergencies. Cash investments like money market funds, CDs, and cash management accounts can also help to lower the overall risk of an investment portfolio.
Vanguard provides several cash solutions to help maximize the earning potential of your savings, including money market funds, CDs, and cash management accounts.
Our savings strategies can complete your holistic financial picture.
1Source: Federal Reserve Bank of St. Louis, Consumer Price Index for All Urban Consumers: Food in U.S. City Average (2024).
2Source: C+R Research, Subscription Service Statistics and Costs (2022).
3Nonqualified withdrawals from a health savings account may be subject to taxes and a 20% federal penalty tax.
4For the 10-year period ended March 31, 2024, 6 of 6 Vanguard money market funds outperformed their Lipper peer-group average. Results will vary for other time periods. Only mutual funds with a minimum 10-year history were included in the comparison. Source: LSEG Lipper. The competitive performance data shown represent past performance, which is not a guarantee of future results. View fund performance
5When taking withdrawals from an IRA or tax-deferred plan before age 59½, you may have to pay ordinary income tax plus a 10% federal penalty tax. Withdrawals from a Roth 401(k) or Roth IRA are tax free if you are over age 59½ and have held the account for at least five years. If you take a withdrawal from your Roth 401(k) or IRA account before age 59½ and less than five years, a portion of the withdrawal may be subject to ordinary income tax or a 10% federal penalty tax, or both. (A separate five-year period applies for each conversion and begins on the first day of the year in which the contribution is made.)
6Source: Investment Company Institute, Trends in the Expenses and Fees of Funds, 2023 (2024).
For more information about Vanguard mutual funds or Vanguard ETFs, visit vanguard.com obtain a mutual fund or an ETF prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing.
All investing is subject to risk, including possible loss of principal. Diversification does not ensure a profit or protect against a loss. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.
Bank deposit accounts and CDs are guaranteed (within limits) as to principal and interest by the Federal Deposit Insurance Corporation, which is an agency of the federal government.
Bank accounts can offer more liquidity, ATM access, and overdraft protection. You should consider all material differences before choosing to invest.
Advice services are provided by Vanguard Advisers, Inc., a registered investment advisor, or by Vanguard National Trust Company, a federally chartered, limited-purpose trust company.