They say that a penny saved is a penny earned, but for a large number of us, saving those pennies is easier said than done. The truth is that many people simply don't know how to budget, or think they don't make enough money to save any of it. In reality, anyone can stick to a budget and start saving -- it just takes some careful planning and a generous dose of discipline. Whether you're brand new to budgeting and saving or have tried and failed at it before, we're here to show you how to build your savings in 10 easy steps.

Those steps are:

1) Figure out how much money you make;

2) Create a budget;

3) Categorize your expenses;

4) See if you have money left over after paying for needs;

5) Change spending to save more money;

6) Build up your emergency fund;

7) Pay off short-term debt;

8) Open a retirement account;

9) Save for short-term goals; and

10) Invest the remainder.


Step 1: Figure out how much money you have to work with

The amount of money you earn each paycheck isn't the same as the amount you ultimately bring home. You can thank your pals at the IRS for that one. But while taxes are an unavoidable expense of working, the amount of money you're left with once you've paid them should serve as the basis for your monthly budget. So let's say you earn $50,000 a year and your effective tax rate is 25%. That means your take-home pay, after taxes, is $3,125 a month, which is the amount you have to work with when establishing your budget.

Step 2: Create a budget

In order to see how much money you stand to save each month, you first need to see how much you're actually spending. To do this, list all of the expenses your budget needs to cover, including:

  • Rent or mortgage payments.
  • Car payments.
  • Transportation costs, such as transit passes, gas, tolls, and automobile maintenance and insurance.
  • Utilities, including water, heat, and electricity.
  • Cable, Internet, cell-phone, and data service.
  • Healthcare, including insurance premiums, deductibles, and copays.
  • Groceries, toiletries, and items needed to maintain your household.
  • Clothing and personal grooming.
  • Student loan or credit card payments.
  • Gym memberships.
  • Obligations and gifts.
  • Entertainment and leisure.

When determining how much you spend each month, don't forget to include one-time expenses and divvy them up over the course of 12 months. In other words, you might pay a yearly membership fee for things such as warehouse clubs or professional certifications, but those costs need to be accounted for even if they don't recur month after month.

Step 3: Divide your expenses into needs versus wants

Once you've listed out your expenses and figured out what you're spending on each, it's time to split those expenses into needs versus wants. Your needs are the non-essentials you can't avoid, such as rent, transportation, healthcare, and food. Your wants, meanwhile, are things like restaurant meals and non-work clothing -- things that are nice to have, but aren't really necessary.

Step 4: Subtract your spending from your take-home pay and see if there's anything left

Now that you know where you're spending money, take the total amount you spend each month and subtract that figure from your take-home pay. If there's money left over to save at least 10% of your take-home pay, you can stick to your current budget if it otherwise works for you.

Let's say you bring home $3,125 a month and that you spend $2,200 a month on needs and $600 a month on wants. Because that leaves you with $325 left over to save each month, you don't necessarily have to jump to cut back on luxuries. But if you're bringing home $3,125 and also spending $3,125 a month, you'll need to adjust your budget.

Step 5: Make changes to free up more money to save

If your current budget doesn't leave you with money left over to bank, you'll need to start cutting corners to make room for savings. First, take a look at your non-essentials and reduce or eliminate the expenses that will impact you the least. If, for example, you're spending $200 a month on restaurant meals, replacing them with home-cooked meals might free up a good $150, and you won't risk going hungry in the process. If cutting back on non-essentials won't do much to help you save, you'll need to reexamine your entire budget and make more drastic changes, like downsizing your living space or trading in your vehicle for one with a much lower monthly payment.

Step 6: Build your emergency fund

Once you've adjusted your budget and spending to make room for savings, your first goal should be to create an emergency fund. The idea behind an emergency fund is that you never know when you might find yourself unable to work for a stretch of time. Having emergency savings on hand can help you stay afloat financially even when you're without an income.

If you don't own a home and don't have any dependents, start by amassing enough savings to cover three to six months of living expenses. If you're a homeowner or have children, aim for six to nine months' worth of living expenses. Once your emergency account is fully funded, be sure to keep that money someplace safe and accessible, like a savings account.

Step 7: Pay off short-term debt

After you've stashed away enough emergency cash, your next savings goal should be to eliminate short-term debt such as credit card debt. While paying off long-term debt like a mortgage or student loan may not be feasible (or at least not in the near future), if you're carrying a balance on your credit card, the money you save each month should now be used to whittle it down. The sooner you pay off your short-term debt, the less money you'll wind up wasting on interest charges.

Step 8: Set up a retirement account

Now that you've built your emergency savings and paid off that pesky credit card balance, your next move is to start saving for retirement. The sooner you begin socking away money, the more time you'll give that money to grow. If you're a salaried employee, see if your company offers a 401(k) plan. If you're self-employed, or if your company doesn't offer a retirement plan, you might look into opening an individual retirement account, or IRA.

Step 9: Save for short-term goals

Though it might seem counterintuitive to start saving for a far-off milestone like retirement before tackling your short-term goals, remember that doing so will help ensure that you have enough money for living expenses in your golden years. If you wait until you're older to start saving for retirement, your money will have much less time to grow, and you run the risk of not amassing enough.

Let's say you're planning to retire at 65 and that you're able to start saving $200 a month starting at age 30. If your investments generate an average annual return of 8% (which is perfectly feasible for a stock-heavy portfolio), then by the time you reach 65, you'll have over $413,000. But if you wait until you're 40 to start saving that $200 a month, by the time you hit 65, you'll have just $175,000 -- less than half!

This is why it's important to put retirement ahead of your short-term goals. However, once you've begun incorporating retirement savings into your monthly budget, you can put any extra money you save toward your near-term objectives, like buying a house.

Step 10: Invest whatever money you're not using

So you've set up an emergency fund, eliminated your short-term debt, built up your retirement savings, and saved up enough for that down payment. What's left to save for? The answer is: anything and everything. You never know when having extra money on hand might come in handy. It might buy you that furniture set you've been eyeing, or the vacation you've been dreaming about for years. So if you have extra money on hand after ticking off all other essentials, you're ready to take that cash and invest it.

It's always a good idea to invest money you don't need or aren't planning to use in the near future, because if history tells us anything, it's that the stock market has a pretty solid track record of delivering strong returns over time. Investing money you expect to need within a year or two isn't a smart move, however, because if your investments lose value, you may not have enough time to wait for them to recover. But if you've already tackled your more pressing savings goals and have time to ride out the market, investing whatever cash you have left over can be an effective strategy for accumulating wealth.

The bottom line

Saving money takes hard work, careful planning, and a serious amount of self-control. But if you're willing to make the commitment, a few smart moves now could set you on the path to financial security in the long run.