How to Save Money With 5 Simple Tips
You don’t necessarily need a windfall or a raise to save more money. The key to boosting your savings, according to experts, is to be intentional—and a little bit creative.
“It’s almost like you have to find ways to manipulate yourself into the right habits,” says Mary Lyons, a financial advisor and founder of Benchmark Income Group in Dallas. “You have to make it easy.”
Whether you’re saving to build an emergency fund or pay off debt, to fund a down payment on a house or set yourself up for a long retirement, resisting the temptation to spend can be hard. However, the right strategies and tools can make saving money less of a chore.
Here are five tips that can help boost your savings.
1. Check your tax withholding
Most people equate taxes with money out the door, except for the tax refund they might get once a year. But when the government sends you a refund, it means you overpaid income taxes. It’s just cash you could have had sooner. Luckily, how much tax gets taken out of your paycheck is in your control.
Your tax withholding form, or W-4, tells your employer how much of your paycheck to set aside for income taxes. It’s possible you haven’t touched a W-4 since starting your job. Experts, however, say it should be updated at least once a year, plus if you have a baby, get married or experience another life change.
According to Brian Heckert, a financial advisor and founder of FSM Wealth, an Illinois-based wealth management firm, withholding too much tax from your paycheck can be a huge barrier to saving money.
By instructing your employer to take less for taxes, you could get bigger paychecks. However, your annual take-home pay won’t change. “The only thing they’re giving up is that spending spree that they get in the spring from that refund check,” Heckert says.
Rather than spending the excess income, Heckert advises “reallocating” the money to an emergency fund or retirement account. If your employer takes $100 less out of each paycheck for taxes, for instance, increase your automatic savings contributions by the same amount.
2. Pick the right accounts
Where you save your money is as important as how much you save, says Lyons. Part of the reason is that when you use accounts that pay interest on your balance, you boost your savings without extra effort.
If you’re saving for a goal with a shorter timeline, such as a down payment on a house or travel, you’ll want an account with low risk and easy access, such as a certificate of deposit, high-yield savings account or money-market account.
The best savings accounts were paying up to 4% interest as of February. That is an extra $40 a year for every $1,000 saved. You may find even higher CD rates; just remember that you’ll have to lock up your money for a period to collect the full interest.
Tax-advantaged investment accounts, including 401(k)s and individual retirement accounts, can also supercharge your savings for retirement by generating returns and deferring taxes on those gains.
3. Set up automatic savings
Research from Duke University suggests that a trick to saving money consistently is eliminating decisions about when and how much to save. In other words, make it automatic. Work retirement plans are designed this way, and you can replicate the strategy in other accounts, too.
If you get paid via direct deposit, ask your company’s payroll team if you can split your paycheck into two or more accounts. Or set up your own recurring transfers from checking to savings on the days you get paid.
One benefit of this setup, sometimes called paying yourself first, is that you know how much money you can safely spend and reduce the temptation to go over budget.
4. Make small increases
If you have access to a 401(k) or similar workplace retirement plan, a good starting point is to contribute at least enough to qualify for a full match from your employer, if it offers one. (For context, most of the 4.7 million 401(k) accounts managed by Vanguard in 2021 had access to employer matching contributions with an average match of 4.4%.)
Then set a reminder to check in every six months and bump up your saving rate by 1%, Heckert recommends. If you boost your savings twice a year, that’s an extra $1,000 a year saved on a $50,000 salary. The increases are so small that it’s like “tricking” your paycheck into saving more money, he says. Over time, those incremental increases can boost your nest egg.
Ultimately, many experts recommend aiming to save 10% to 15% of your salary toward retirement, but some offer more nuanced formulas to figure out how much you should save.
The same increase strategy can be applied to nonretirement goals by periodically adjusting the dollar amount you automatically transfer from your checking account to a savings account or through direct deposit.
5. Gamify with saving ‘rules’
Find the fun in saving money by turning it into a game. Consider using a budgeting app with creative, automated saving features. Chime, for instance, rounds up debit card purchases to the nearest dollar and transfers the excess to a savings account. Each time you spend, you’ll also be saving.
Another app called Qapital lets you set up “rules” that trigger transfers into savings for specific purchases, deposits or behaviors. For example, you can make a rule to transfer $3 into savings every time you complete a workout or spend money in a particular category.
According to an analysis of Qapital users’ data by the Consumer Financial Protection Bureau, these if-then rules were associated with a $126 to $142 increase in savings balances, on average, over a year. Users who set “guaranteed” rules, like automatically transferring a set amount into savings every Friday, saved even more.
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