How To Save Money: Practical Tips To Build Your Savings

Nearly four out of 10 Americans say they can't cover a $400 emergency with cash, according to the Federal Reserve. Without savings, many people are forced to take on debt or skip the expense entirely. Either option can make it even more difficult to get ahead financially.

Saving money for both expected and unexpected expenses is one of the best ways to avoid falling behind. If you're ready to stop living paycheck to paycheck, here's what you need to know about how to save money and build long-term financial stability.

Why saving money is important

If your income hardly feels like it covers your necessary expenses, the idea of saving money can feel overwhelming. But a savings habit is absolutely necessary if you ever want to reach your financial goals.

When you consistently set money aside, you'll experience these benefits:

• Greater financial security: Unexpected expenses will no longer derail your budget since you have cash available to cover them.
• Clearer timelines: You can plan your short-term and long-term goals, such as going on vacation or buying a house, because you'll have a clear idea of when you'll meet the savings goals.
• Less stress: Knowing how you'll pay for both unexpected expenses and future goals can help lower your financial stress levels.

How to create a money-saving plan

You've probably heard the advice to save three to six months' worth of expenses for emergencies like job loss. While that's a solid long-term goal, it can feel overwhelming, especially if you're starting from zero. A more realistic first step is to set a smaller, attainable savings goal.

Even if you feel like there's no slack in your budget, there are several strategies you can use to find money to set aside, including:

• Automate your savings: Set up an automatic transfer of $20 (or whatever amount you won't miss) from each paycheck to your savings account.
• Save a portion of any “found” money: Put aside part of any windfalls like tax refunds, bonuses, or birthday money.
• Track your spending: Look for small expenses you can cut, such as unused subscriptions or frequent takeout.

Learn More: How To Start an Emergency Fund

Best ways to save money daily

Day-to-day spending can be a good place to start looking for ways to save, particularly once you've identified unnecessary expenses. For example, many of us continue to pay for subscriptions that we no longer use. Taking some time to identify all the services you're subscribed to and canceling the ones you don't want will immediately save you money every month.

Dr. Darla Bishop, author of “How To Afford Everything,” offers several other suggestions for saving money on your daily expenses:

• Download the apps for your grocery store to take advantage of digital coupons.
• Consider switching some of your shopping to discount stores like Aldi or box stores like Costco, BJ's, or Sam's Club.
• Use an app like Ibotta or Rakuten to earn cash back on the things you buy.
• Check with your employee benefits for discount programs your employer has arranged. You may be eligible for discounts on items you buy every week or month.
• Create a separate email inbox for any online retail checkouts. Then, move all marketing emails you're currently signed up for into that separate email account. This will keep you from being tempted by sales emails in your daily inbox.
• Check your credit card benefits. You may have built-in discounts or special pricing for your favorite streaming service, delivery app, or retailer.

How to save money on major expenses

While saving money on daily expenses can add up, you can also lower the cost of your major expenses to save a large amount in one fell swoop. Consider these money-saving strategies:

Housing costs

Housing and utility bills are the biggest monthly expenditures in most budgets. If you have a move coming up, Bishop recommends negotiating rent and move-in fees. Downsizing to a smaller home can also help reduce your housing and utility costs.

In addition, you can keep utility costs down by using ceiling fans to reduce heating and cooling usage, weatherproofing your windows and doors, and running your large appliances (such as dishwasher, washing machine, or dryer) in the evening.

You can also lower your homeowners or renters insurance premiums by increasing your deductible. Just make sure you can cover the higher deductible if you need to make a claim.

Groceries and meal planning

Reducing your food waste can save you a lot of money over the course of a year. The U.S. Environmental Protection Agency estimates that the average American wastes nearly 219 pounds of food per year. Meal planning is one good strategy for ensuring you use the food you purchase.

Another important strategy is being aware of what you already have in your kitchen. “Do a monthly freezer and pantry audit,” says Bishop. “That ensures you aren't buying duplicate items — or missing the opportunity to turn wilted veggies into a delicious rice bake or risotto with that arborio rice you bought last year.”

Transportation costs

Cutting back on transportation costs is another way to free up money in your budget. For example, you might reduce the amount of time you drive by carpooling, batching errands, or walking or using public transportation more often. This can help you save on gas money.

You can also look for savings on car insurance. Increasing your deductible may lower your premium, and if you drive an older car, it might be worth reviewing your coverage levels to see if you're paying for more protection than you need.

Major expenses

If you're making a major purchase, such as a car, a new computer, or a piece of furniture, a little persistence and patience can help you save a lot of money.

Jim Wang, entrepreneur, personal finance expert, and founder of WalletHacks.com, says one of the easiest ways to save on big purchases is by simply asking for a discount. Wang, who previously founded the blog Bargaineering and sold it for seven figures, recommends getting comfortable with negotiation.

“Whenever you buy something significant, there is always some discount the salesperson can get for you because they want the sale, too,” Wang says. “Sometimes all it takes is for you to ask, ‘Is there any sale or promotion you can apply?’”

He adds that timing is key. If you're not in a rush, the salesperson may either offer a deal on the spot or let you know when the next sale is happening. Waiting it out can lead to bigger savings.

Where to put your savings

Once you choose a place to keep your savings, set up automatic transfers right away. This makes saving consistent and effortless. Money moves from your paycheck or checking account to your savings account, without you having to think about it.

There are several types of savings accounts to consider:

• Traditional savings accounts: These are available through traditional banks and credit unions and can be linked to a checking account with the same institution. This makes money in a traditional savings account easy to access. These accounts often have a very low interest rate and no minimum required balance.
• High-yield savings account: These offer better interest rates than traditional savings accounts, but they may require a high minimum balance. Keep in mind that many high-yield savings accounts are offered by online-only banks, which can mean transfers from the savings account to your checking account take a couple of days to clear.
• Certificates of deposit (CDs): These products tie up your money for a set period of time — typically between 6 months and 5 years. When the CD matures (reaches the end of its time limit), you get your money back plus interest. While the yield on CDs tends to be higher than what you can earn from savings accounts, you will pay a penalty if you try to access your money before the maturity date.
• Money market accounts: These types of deposit accounts offer higher interest rates than traditional or high-yield savings accounts and will often allow you to make payments or withdrawals like a checking account. However, money market accounts typically have a high minimum deposit requirement, and they limit the number of transactions you can make per month.

Tips for staying on track with savings

Saving isn't a one-time task, it's a habit you build over time. To stay consistent, you'll need to be intentional about making it part of your routine. Here are a few ways to keep your savings on track, even when it's easy to forget about it:

• Try 50/30/20 budgeting: This easy-to-remember budgeting technique suggests spending no more than 50% of your income on things you need (like rent, groceries, and transportation), 30% on things you want (like dining out, streaming services, and concerts), and setting aside the remaining 20% for savings. The trick to this budgeting strategy is to make sure you set aside the 20% for savings first, before you begin spending.
• Review regularly: Review your spending regularly to ensure you haven't slipped into old bad habits or picked up new ones. By committing to a monthly or quarterly review, you can adjust your saving and spending habits if they've fallen out of sync.
• Avoid lifestyle inflation: It's easy for your spending to grow when your income does. To keep this from happening, increase your savings rate each time you get a raise or other increase in your income. That way your higher income goes toward your savings goals rather than lifestyle inflation.