If saving money were a total breeze, perhaps people would do a better job of it. Unfortunately, a large percentage of Americans are glaringly behind on both near-term savings and retirement savings. If you've been slacking on the savings front, or have been making an earnest effort to save but find that you're still falling short, you're not alone. Sometimes, saving money boils down to having the right strategy, and with that in mind, we've mapped out a guide that will help you pad your savings account, establish an emergency fund, and build a nest egg so that you're set for the future. With any luck, it'll do just the trick in helping you meet your savings goals.

Why we all need savings

If you're used to living without much in the way of savings, you may be wondering why having money to your name is so important. Here's why you need savings for every stage of life. Without immediate savings, you'll be forced to resort to loans or credit-card debt the minute an unplanned expense falls in your lap. Once that happens, you'll kick-start a vicious cycle: For each day you don't pay off what you owe, interest will accrue against you. All told, you'll end up paying much more for whatever expense you charged or borrowed money for, if you manage to pay it off. And if you don't, you'll risk wrecking your credit beyond repair.

Woman placing coin into glass jar half-filled with coins

IMAGE SOURCE: GETTY IMAGES.

Then there's long-term savings, which you'll need if you want a shot at a financially secure retirement. Contrary to what you may have been told, your Social Security benefits won't provide enough income for you to pay your bills as a senior. In a best-case scenario, Social Security will replace about 40% of your pre-retirement income, if you were an average earner. However, most seniors need roughly 70% to 80% of their former earnings to cover their expenses in the absence of a steady paycheck. Your savings, therefore, will be crucial in bridging that gap.

Of course, these are just a couple of scenarios in which you'll need savings. You'll also need a chunk of cash to meet milestones like:

In fact, think about your various life goals. Chances are, you'll need money to fulfill at least some of them. And that's why it's crucial to focus on savings, whether you're a recent college graduate just starting out in the real world, or a pre-retiree counting down the days until your career comes to a close.

Types of savings

There are different types of savings you should aim to accumulate over time. First, you'll need emergency savings, which is money you can dip into at any time to cover unplanned bills. When we think about short-term savings, we're generally talking about an emergency fund, though you might aim to accumulate short-term savings for other purposes, like buying a home or saving for a vacation. Then there's retirement savings, or long-term savings, which you'll need in order to cover your expenses once you no longer have a steady paycheck coming in from work. Both short- and long-term savings are extremely important, but whereas you'll probably house the former in a bank account, you'll want to invest the latter for maximum growth. 

Your emergency fund

The most important type of short-term savings you must accumulate is your emergency fund. This is the money you'll tap the next time your car breaks down, your roof collapses, you lose your job, or you encounter any other scenario where a bill comes your way that your paychecks can't handle. Having emergency savings is so essential, in fact, that it should trump any other financial goal you might have, whether it's putting a down payment on a house or building a nest egg for retirement.

How much money do you need for emergencies? Ideally, you should have enough to cover three to six months' worth of living expenses. However, if your income is variable, your job isn't stable, or you're the sole breadwinner in a household with multiple dependents, you may want to aim for more like nine to 12 months' worth of living expenses.

If you're wondering where to park your emergency cash, the answer is none other than the bank. Currently, the FDIC will insure a deposit of up to $250,000 per saver, per insured institution, which means you're guaranteed not to lose out on any principal you sock away. Of course, the downside to keeping your savings in the bank, as opposed to, say, the stock market, is that you'll see limited growth on your money, especially given today's interest rates. On the other hand, you'll be able to rest easy knowing that your money is accessible when you need it. You won't have to worry about selling off securities to access your cash, nor will you risk taking losses on your principal if you need money at a time when the market isn't doing well.

Once your emergency fund is fully established, you can start saving money for other short-term goals, such as buying a house, going back to school, or even upgrading the electronics in your home. It's perfectly OK to save money for things that bring you enjoyment but are technically non-essential, provided that you have a fully loaded emergency fund and are also focusing on long-term savings.

Long-term savings

You'll need some long-term savings if you want to live comfortably once you're retired. As a general rule, it's wise to set aside 15% to 20% of your income for the future, and the reason, again, is to ensure that you have enough money to cover your bills when you're older.

One thing to keep in mind about retirement is that your expenses may not drop as much as you'd expect them to. Think about the different bills that eat up your money today, like housing, healthcare, transportation, food, clothing, utilities, and entertainment. These are all things you'll want or need in retirement, so other than the cost of your commute to work, you probably won't experience such a dip in spending when you're older. There are several options for building long-term savings that not only allow you to accumulate wealth over time, but offer some tax benefits as well. 

Saving for retirement in a 401(k)

If your employer sponsors a 401(k) plan, signing up might be the easiest way to build a nest egg for retirement. With a 401(k), the money you choose to contribute will be deducted automatically from each paycheck you receive and deposited into your account. From there, you can choose your own investments from those offered by your plan to grow your savings over time. Unlike near-term savings, which belong in cash, long-term savings, like your retirement account, should be heavily invested in stocks to fuel their growth, so be sure to take a look at your plan's offerings, which will likely consist of mutual funds and index funds, and choose those with a stock-focused strategy.

Aside from making retirement savings easy and seamless, 401(k)s also allow for higher annual contributions than several other retirement plan options. You can currently put in up to $18,500 a year if you're under 50, or $24,500 a year if you're 50 or older. And because the majority of companies that sponsor 401(k)s also match employee contributions to different degrees, there's a good chance you'll score some free cash by participating.

Another benefit of saving in a 401(k) is the tax breaks involved. With a traditional 401(k), the money you contribute will go in tax-free and grow on a tax-deferred basis, which means you won't pay taxes on investment gains year after year. With a Roth 401(k), you won't get an immediate tax break, but your money will grow tax-free, and your withdrawals will be taken tax-free in retirement. 

Saving for retirement in an IRA

If you don't have access to a 401(k) through work, you can save for retirement in an individual retirement account, or IRA. Whether you opt for a traditional or Roth IRA, you can contribute up to $5,500 a year if you're under 50, or $6,500 a year if you're 50 or older. And, as is the case with a 401(k), once you open an IRA, you'll get to choose from a range of investments to grow your wealth. In fact, you'll generally get far more options in an IRA than with a 401(k).

In addition to the traditional and Roth IRA, there are two IRA types available for self-employed individuals: the SEP IRA and the SIMPLE IRA. Short for simplified employee pension, a SEP IRA allows you to contribute up to 25% of your net business earnings each year for a maximum of $55,000. With a SIMPLE IRA (short for savings incentive match plan for employees), you can contribute up to $12,500 per year if you're under 50, or $15,500 if you're 50 or older.

Keep in mind that all of the aforementioned limits are effective as of 2018. There's a good chance they'll go up over time, in which case you'll have the opportunity to save even more. Furthermore, all of these IRA types, aside from a Roth, allow you to make tax-free contributions and offer tax-deferred growth on your investments. Roth IRAs are funded with after-tax dollars, so you lose that immediate break. However, your money gets to grow completely tax-free so that by the time you're ready to take withdrawals in retirement, that cash is yours free and clear of taxes. While higher earners aren't eligible to contribute to a Roth IRA directly, there's always the option to fund a traditional IRA and then convert it to a Roth after the fact. 

Saving for retirement in a non-tax-advantaged account

Of course, you don't have to house your retirement savings in one of the above-mentioned accounts. You can always open a traditional brokerage account and grow your wealth there, or even leave your retirement savings in the bank. Neither option is advisable, though, because with both, you'll lose out on the many tax breaks associated with IRAs and 401(k)s. And if you leave your money in the bank, you'll limit its growth, since stocks have the potential to deliver much higher returns than savings accounts.

Savings growth over time

Once you establish your emergency fund, your goal should be to leave that sum intact and in a safe place where your principal is protected, like the bank. But when you're saving for retirement, you'll want to take steps to grow your money as much as possible -- namely, by investing it. 

To give you an idea of how much retirement savings you might accumulate in an IRA or 401(k), check out the following table:

If You Start Saving $500 a Month at Age:

Here's Roughly What You'll Have by Age 70 (Assumes an Average Annual 7% Return):

25

$1.7 million

30

$1.2 million

35

$829,000

40

$567,000

45

$379,000

TABLE AND CALCULATIONS BY AUTHOR.

Note that the above figures assume a 7% average annual return, which is a few percentage points below the stock market's average. These numbers also underscore the importance of saving for retirement in a tax-advantaged account and investing that money somewhat aggressively -- meaning, loading up on stocks. This way, you're earning a higher return on your money than a savings account with a low interest rate or safer investments (like bonds) will allow for. And, because you're not paying taxes on your gains year after year, you get to reinvest that money for maximum growth.

If you're uncomfortable with the idea of investing your retirement savings without help, it pays to find a financial advisor you can trust. That way, you'll benefit from the expertise of a professional who can work with you to devise a financial plan that increases your chances of meeting your long-term goals. 

Ways to save money 

Now that we've reviewed the different types of savings you might need, let's talk about how you'll get there. One thing you need to know about saving money, whether it's for emergencies, retirement, or another goal, is that doing so will require some work on your part. Not only that, but you'll need to make some hard choices about how you spend your money, because the less you throw away needlessly month after month, the more you stand to save. Here are some of the most effective steps you can take to boost your savings. 

Create a budget

One of the most important steps on the road to saving money is creating a budget. This will allow you to see where your money is going month after month and help you identify ways to free up cash.

To set up your budget, comb through your bank and credit card statements to figure out how much you generally spend on a monthly basis. Some expenses, like your rent payment, will be easy to determine, because you're dealing with a static figure. Others, like groceries, will be trickier, because you'll need to calculate how much you spend on average.

Also, don't forget to factor one-time expenses into your budget, such as an annual subscription or insurance policy renewal. If your $1,500 life insurance premium comes due every September, you'll want to factor in $125 per month to cover that cost.

After you've listed and totaled up your various expenses, you'll want to compare that number to what you bring home in your paychecks. If you're left with enough room to save 15% to 20% of your earnings, you're in good shape. If not, you'll need to cut corners.

Slash expenses in your budget

Even if you are in a position to bank 15% to 20% of your income after paying your regular bills, you might still choose to cut some expenses to free up more room for savings. This especially holds true if you're looking to meet a specific goal, like buying a house or taking a big vacation.

What items might you cut from your budget? It depends on how much of a savings gap you need to fill. If your current expenses only allow you to save 3% of your earnings, you'll have to do a fair amount of slashing to hit that 15% to 20% target. If that's the case, you might consider cutting one major expense, like your housing or car payment, rather than reducing a number of smaller expenses. For example, if downsizing your living space shaves $500 a month off of your rent, you may be better off going that route than messing with a whole bunch of different spending categories.

On the other hand, if you're already in a position to save 15% of your earnings and you want to get to 20%, you won't need to go to the same extremes. You might instead cut one or two smaller expenses, such as:

Imagine you're currently spending $120 a month on cable and $60 a month at the gym. If you downgrade your cable package so it starts costing you $70 a month instead and start exercising outdoors instead of paying for a gym, you stand to bank $110 a month, or $1,320 a year. Of course, your exact savings will depend on how much you currently spend on various expenses, but the point is that minor changes to your budget can add up over time.

Automate your savings

Once you've reworked your expenses to free up a nice chunk of cash each month, it pays to automate your savings so that you're paying yourself first. If you're looking to boost your emergency fund or set aside funds for a near-term goal, you can set up an automatic transfer with your bank where a portion of each paycheck gets sent directly to a savings account. If you're looking to automate your retirement savings, you can sign up for your company's 401(k) plan and have money deducted from each paycheck. Some financial institutions also allow you to set up automatic transfers to an IRA.

No matter what sort of account you're looking at, automating your savings is a great way to remove the temptation to spend your extra cash. After all, if you never see that money hit your checking account, you won't have the option to blow it in the first place.

Get a side hustle

In addition to following a budget and lowering your expenses, another good way to build savings is to take on a side hustle. The benefit of getting a second job on top of your primary one is that the money you earn from it won't already be earmarked for existing expenses. Therefore, you should, in theory, have no problem saving it all. The extent to which your side hustle is profitable will depend on how many hours you put in each week and the nature of your work itself. But if you manage to snag an extra $100 a week from your efforts, you'll be more than $5,000 richer in a year's time.

Sell unwanted stuff

Another option for saving money involves taking regular inventory at home and selling the things you find you no longer need. Maybe you've upgraded to a new laptop, or lost weight and have a closet full of clothing that no longer fits. Selling these items, whether online, at garage sales, to consignment shops, or to friends, will serve the ever-important purpose of putting cash in your pocket. Even if you're only talking about $50 here or $100 there, it still pays to get some money for the items that are serving no other purpose than taking up space.

Avoid impulse purchases

Additionally, being mindful of the way you spend money will go a long way toward helping you meet your savings goals. An estimated 84% of U.S. adults admit to falling victim to impulse buys, so if you can avoid making purchases on a whim, you stand to save even more. A good way to steer clear of impulse buys is to institute a 24-hour rule for non-standard purchases (by "standard," we're talking groceries, gas for your car, and the things you need to function). When you see something you're tempted to buy, force yourself to wait at least 24 hours before moving forward. Chances are, you'll come to realize that while the item in question may be nice to have, you can easily live without it.

Shop smartly

Being a savvier shopper will also help with your savings efforts. Before you venture out to the store (whether it's for food, clothing, or household supplies), make a list of the items you need and don't stray from it. Also, look for coupons and rebate offers that will lower the cost of the items you're buying. Imagine, for instance, that you're able to save $5 a week on groceries by looking out for sales and planning your meals ahead of time. That may not seem like a lot, but over the course of a year, you'll bank $260 from your efforts.

It also pays to comparison-shop for big-ticket items like appliances, furniture, and even auto or home repairs. Spending a little extra time doing research could shave a bundle off the cost of the things you want or need, leaving you with additional money to stick in the bank.

Furthermore, shopping with a credit card is a good way to get cash back for the things you're already planning to buy. Just make sure to never charge more than what you can afford to pay off by the time each bill comes due. Otherwise, you'll end up hurting your savings efforts by racking up costly interest charges instead of helping them.

Embrace frugality

Finally, adopting a frugal mindset will help you save money in small but meaningful ways. For example, being just a tad less generous with the heat during the winter could lower your utility bills, so if you're going out for a couple of hours, lower your thermostat. Similarly, if you're able to walk the 10 blocks to your friend's dinner party instead of taking a cab or subway, that's money you'll get to keep for yourself. This isn't to say you have to deny yourself every possible convenience life has to offer. Rather, just be mindful of the fact that seemingly minor moves can add up over time.

Anyone can save money

Saving money takes effort and sacrifice. The upside? Having cash on hand for emergencies, goals, and retirement will not only buy you peace of mind, but also bring you a much-deserved sense of satisfaction. Remember, anyone who earns an income has the ability to save money. You don't need to be rich to build wealth; you just need to make smart choices. And once you get into the habit of saving money consistently, you'll probably come to find that it's easier than you thought it would be.

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