15 Savings Rules You Need to Live By

Saving money is something that everyone needs to do. In fact, most people should be saving for both long-term and short-term goals ranging from retirement to vacations.

Unfortunately, it can be difficult to figure out how to save enough to accomplish all the things you want to do with your money.

If you find saving challenging, these 15 rules could help you become much more effective at it. And following them could ensure that your financial goals aren't just dreams, but will eventually become reality.

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When you decide how much to save, don't choose a specific amount -- such as $100 a month or $5,000 a year. Instead, commit to saving a specific percentage of your income.

This is a better approach for two reasons. One, when you're earning more, you'll save more. And two, your earnings tend to go up as you age. As you grow older and get closer to retirement -- or need to take on more financial responsibility, such as buying a home -- your savings will automatically increase.

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The traditional rule of thumb when it comes to retirement savings is to save 10% of income. Unfortunately, that will probably leave you with a shortfall given changes in life expectancies and expected future returns. Instead, saving closer to 15% of your income for your later years will leave you a lot better off as a retiree.

Of course, retirement isn't the only thing you should save for. Since you need to be prepared for your other short-term and long-term financial needs, try to save 20% of your income (or more, if you can swing it).

Not everyone will be able to do this immediately. But it's something to shoot for over time.

When your employer gives you a raise or you switch jobs and get a salary bump, you have a perfect opportunity to increase your savings.

Before you ever get used to spending the extra money, commit to saving some or all of it.

You're used to living without the additional income, so instead of upgrading your lifestyle, use the money to save for the future -- at least until you hit your 20% savings goal.

Saving money is easier if you have specific goals in mind. When you're saving for something, such as retirement or a vacation, it won't feel like so much of a sacrifice to spend less now.

Saving for specific goals also enables you to determine exactly how much you need to set aside to accomplish each one. If you know you will need to make a $50,000 home down payment in five years, you can see clearly that you'll need to save around $833 per month to do it.

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No one has ever regretted having too much money saved for retirement, or too large of an emergency fund or home down payment.

So when you're deciding how much money to save, err on the side of caution and set your target just a little bit above the amount you need. You'll be a lot better off if you end up with extra money than if you get stuck with too little.

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Simply deciding that you want to save a certain amount of money for retirement or a vacation or a big purchase is often not good enough to help you accomplish that goal. After all, it's a lot easier to keep spending today and just push off your savings efforts until the future.

To make sure you're actually hitting your savings targets, set a timeline for achieving them. This could mean anticipating that you'll want your retirement nest egg ready in 30 years or that your vacation fund needs to be large enough to hit the beach in 12 months.

When you make a budget, it shouldn't just be a list of what you're going to spend. You also need to make sure that savings is included in it. In fact, you should have a separate line in your budget for retirement savings, as well as for all of the other kinds of savings you're doing.

When you budget to save, you'll see immediately whether you have enough income to both accomplish your goals and pay for your daily costs of living. If you don't, you'll need to cut spending, increase your income, or modify your financial goals.

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Certain types of saving -- such as putting aside money for retirement -- are not optional. You will need money to supplement Social Security since the benefits won't be enough to live on alone.

Preparing for a secure future is just as important as covering your essential costs now, so treat it that way. You'd do everything you could not to miss a mortgage or a rent payment, so treat your commitment to save with the same seriousness as you would treat not covering one of these other essential expenses.

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Don't force yourself to manually transfer money to savings each month. Chances are good you won't do it because you'll find other things to spend your money on in the short term.

Instead, take away the option not to save. Set up automatic contributions to your 401(k) at work so the money comes out of your paycheck before you see it. And make automated transfers to your other accounts, such as an IRA or home down payment fund.

If you've budgeted for the amount of savings you'll need, you'll know exactly how much to transfer -- and should be able to live on what's left over.

You don't want your savings and your spending money mixed up, so make it a point not to use your regular checking account to save. Instead, have dedicated savings accounts that are entirely separate from the account you use to pay bills or withdraw money from.

If you don't do this, it's too hard to keep track of your savings progress -- and too easy to end up spending the money on other things, even if you've mentally earmarked it for your future.

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Since you should be saving for both short-term and long-term goals, you'll need to choose the right kind of savings account for each.

Typically, you'll want to save for retirement in a tax-advantaged investment account such as a 401(k) or IRA. If you're saving for healthcare and you're eligible, an HSA is the way to go.

But for your emergency savings, which you need accessible, a high-yield savings account is a better bet. A high-yield savings account is also a good choice if you're saving for other short-term goals, such as for a vacation that you'll take in two years or a down payment for a home you'll purchase next year.

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Chances are good, some of your saved money needs to be invested. That's because the returns you earn on a high-yield savings account are simply too low to help grow your wealth. In fact, in most cases, you'll need to put some of your money into the stock market if you hope to earn the types of returns that will allow you to build a generous retirement nest egg.

You don't want to invest too much of your money, though. In fact, you should learn the rules for sound asset allocation.

Typically, you don't want to invest money that you'll need within the next five years. And you should subtract your age from 110 to decide how much of your retirement savings to put into the market.

These are just basic rules of thumb, and you may decide a different approach works best for you. But carefully think through your options so you're doing the right things with your saved funds.

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Once you've put money aside for specific goals, leave that money invested until you're ready to spend it on whatever you saved it for.

This means you shouldn't raid your home down payment to go on vacation, nor should you take a loan or early withdrawal from your 401(k) until you're ready to retire.

As you work toward your savings goals, track your progress. Monitor whether you're meeting your goal each month and see how your account balance is growing over time.

By keeping tabs on how effective your savings efforts are, you can change course if things aren't working -- or get even more motivated to keep saving once you see your hard work pay off.

It can be hard to sacrifice to save month after month, or year after year for long-term goals. Reward yourself for your efforts by celebrating your successes.

This could mean a small splurge every time you add another $1,000 to your retirement fund, or even simply partnering with an accountability buddy who you can share your progress with.

It'll be a lot easier to keep up your saving efforts when you recognize your accomplishments.

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If you live by these 15 savings rules, you're all but certain to save the money you need for retirement and other major purchases. It may take some sacrifice and it may take time to implement them all, but the effort will be well worth it.

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