Many Americans struggle to save money, to the point where some of us don't have so much as a dollar in the bank. Without emergency savings, you run the risk of taking on serious debt if a job loss or illness leaves you without income for a stretch of time. Similarly, if you fail to save retirement, you risk coming up short once you're no longer working.
Thankfully, saving money doesn't have to be complicated. There are many money-saving techniques out there that are easy to put to use, and some of the best ideas are simple yet hard to execute. If you're ready to get serious about banking some cash, here are three no-fail tips on saving money.
1. Create a budget
Do you really know where all of your money goes each month? You might think you do, but without a budget, you could be underestimating what you spend on various expenses. According to a 2013 Gallup poll, only one-third of Americans actually maintain household budgets, which perhaps explains why most people also fall short on savings.
Creating a budget will help you accurately track your spending, and once you really understand where your money goes, you can take steps to lower some of your living costs and free up money to save. To create a budget, make a list of your monthly expenses, from rent to cable to food. Record the amount you spend in each category every month and see how much money that leaves you for savings. If you find that you're spending your entire paycheck month after month, then you'll need to make changes to lower your expenses and free up money to put in the bank. That could mean downsizing your living space or cutting back on entertainment.
If the idea of updating a spreadsheet every day sounds less than exhilarating, worry not. There are a number of budgeting apps (like Mint) that can link your accounts and track your spending automatically.
2. Sign up for an automatic savings plan
You can't spend money you don't know you have, right? If you're not a natural saver, then your best bet is to pretend that some of the money you earn doesn't exist, and you can do this by setting up an automatic savings plan. There are several types to choose from, but the two you may want to focus on are a traditional savings account and a retirement account. Most banks allow you to automatically transfer money into savings, so after you sign up for direct deposit with your employer, arrange for a portion of each paycheck to go directly into your savings account. If your employer offers a 401(k) plan, then you can also arrange to have a certain percentage of each paycheck automatically deposited into your retirement account. Not only will this help you save for the future, but it will lower your taxes up front, as 401(k) contributions are deductible in the tax year they're made.
While it's important to have an emergency fund and to save for retirement, you should tackle the former goal first. Once you've amassed enough money in savings to cover three to six months of living expenses, you can focus on building your retirement nest egg.
3. Avoid sales for the sake of sales
We all love buying things at a discount, and it's natural to be tempted when you see something advertised at a price that's considerably lower than the going rate. But unless there's a specific item you're looking to buy, you're far better off avoiding sales altogether. Purchasing a shirt that normally retails for $40 at 50% off might seem like a good way to save $20, but if you don't actually need that shirt in the first place, you're not saving anything. Quite the contrary -- you're spending $20 for no good reason when you could be saving it instead.
Sales and impulse buys actually play a huge role in derailing Americans' savings efforts. According to a survey by CreditCards.com, 75% of Americans are guilty of making unplanned purchases. Worse yet, 10% admit to having spent more than $1,000 on an impulse buy. Avoiding unneeded purchases requires some serious willpower, but you can take steps to resist the urge to over-shop.
For example, when you go shopping, take only the amount of cash you need to buy what you're planning to get, and leave your credit cards at home. If you don't have a way to pay for impulse purchases, then you eliminate the option to buy them in the first place. If you live within walking distance of where you shop, then leave your car at home. You'll be less likely to splurge if you have to carry everything home.
And another thing: Studies show that people tend to spend less when they pay with cash. In fact, Bankrate.com found that those who use credit cards at fast food restaurants spend 50% more on average than those who use cash. If you can't trust yourself to limit your spending, then your next best bet may be to ditch the credit card altogether.
Saving money often boils down to discipline more than anything else. It's easy to fall into the trap of thinking you'll save money next month, or the month after that. In reality, saving money is something you should be doing all the time, and the sooner you get into that habit, the more financially secure you'll be in the long run.