In Finance

How To Begin Saving Money

how to save

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Figuring out a plan to start saving money might seem difficult, especially if you don’t know where to start.

How much to save?  What savings vehicle/account type to do it with? These are tough questions with different answers depending on your situation. It’s crucial to know why are you are saving. The number one reason to start saving is to create or maintain a strong financial foundation regardless of where you are in life.

Think about an emergency fund. Before you do anything else (such as eating out, buying new clothes, vacationing, paying for a gym membership, investing, starting a business, etc.), you should have a savings account for critical emergencies. Experts recommend that you save anywhere from 3 months to 12 months of living expenses for emergencies. An emergency fund will give you a sense of safety and security in your life so you’re not worried and stressed about paying for life’s necessities. When something goes wrong like losing your job, and you have an emergency fund, you may be upset or stressed, but you won’t be scared. The ability to pay for things in a pinch will make you feel secure and strong (and who doesn’t want that?).

Besides an emergency fund, there are many other savings accounts that can help you meet your financial goals. Below are recommendations on how much to save, what to save for, and different savings vehicles/accounts to save your money in.


The best way to start saving money is to set aside a small amount of money from every paycheck into savings. If you set up automatic online transfers or direct deposit, you pay yourself first. This way, you build savings no matter what. If you wait until the end of the pay period or month and do it manually, you might be out of money. The number one factor to success with saving money is doing it little by little. If you make saving some from every paycheck habitual, you are setting yourself up for a strong financial foundation (the habit of saving is more important than the amount). Here are four different strategies to help you get started.

  1. The 50-20-30 rule. Under this rule, 50% of you money goes toward fixed costs (housing, food, bills), 30% goes toward financial accounts (savings, retirement, and debt payments), and 20% goes toward flexible spending (such as eating out, shoes, alcohol). Under this rule, you divide the 30% for financial payments between your emergency fund savings, retirement savings, debt payments, as well as any other savings accounts you have (vacation, education, down payment etc). Dividing up the 30% varies by person, but you should start with high interest debt payments, then retirement accounts, then emergency funds, then everything else.
  2. Put 10% of your take home pay toward an emergency fund, 10% toward retirement, 10% toward anything else you want to save for (vacation, education, etc).
  3. Allocate 15% of your take home pay toward your emergency fund until you have 6 months of living expenses saved up. After that, start another account (retirement and/or other savings accounts) and divide that 15% between these new accounts, continuing to save based on your goals.
  4. Save what you’re able to each month. If you’re just starting out, saving 30% might seem like a lot. If you have other responsibilities that make saving 30% impossible for you, put whatever you can into savings every month. When you can afford more, up your contribution amount. Again, always pay yourself first (not at the end of the month).


Most people vary on the amount and types of savings accounts you should have. But you absolutely need an emergency fund. Aside from that, it’s up to your personal choices (retirement, education etc). Below are examples of savings account categories.

  1. Emergency Fund
    Experts suggest saving for at least 3 months and up to 12 months of a living expenses. Multiply your monthly expenses by however many months you’re saving for and that’s your target number. So, if you bring home $3,000 per month and your expenses are $2,000 per month, then your emergency fund should be at least $6,000 up to $24,000. An emergency fund will protect you when unexpected life events happen. Only after this money is in the bank should you make large expenditures like buy a home or contribute to an investment account. This is your lifeboat. Don’t touch it; just leave it alone. Having this on hand will create some breathing room and give you confidence, power, and security as you make financial decisions in the future.
  2. Big Purchase Savings
    Besides an emergency fund, think about opening a savings account for large purchases, like a down payment for a house. This will ensure you’re prepared to make big purchases without having to scramble.
  3. Retirement Savings
    The sooner you start putting money towards retirement, the better off you’ll be. If your job offers a 401k (or equivalent) that’s probably a good place to start (especially if they match contributions, who doesn’t want free money?). You should also look into contributing to an IRA or individual retirement account.

    • Related: Betterment Review – A better way of lazy investing
  4. Education Account (if applicable)
    If you have small children or are thinking about going back to school, consider opening a 529 plan. Any gains made are tax free if applied towards education. Not needing to take out student loans is a good thing.


There are three types of accounts that are good places to stash money for building an emergency fund. These three places keep your money remains liquid (i.e. easily accessible if and when you need it). These three accounts are: 1) local savings account, 2) online savings account, and 3) certificates of deposit (CDs).

  1. Local Bank Savings Account
    • Nope, not worth it. You can open a savings account at your local bank, just know that you are almost better off hiding cash in your mattress. These accounts yield basically nothing, like 0.01%, so forget about it.
  2. Online Savings Account
    • You can find online savings accounts with around 1% interest, which might not seem like a ton, but it’s much better than 0.01% (100x better in fact). The main caveat for these online accounts is the limit of six withdrawals per month (but that’s fine, these are for saving, not spending). All of these online savings accounts have no minimum and no fees:
  3. Certificate of Deposit
    • A CD is similar to a savings account with two major exceptions. First, you deposit an amount up front (as opposed to weekly, monthly, etc) to earn interest. Second, CDs cannot be touched (without penalties) until the end of the agreed upon term. Common terms are one, three, and five years. The longer you are able to let your money sit and grow, the greater the interest rate. These CDs have
      • Barclays, 2.25% APY, 5 years, minimum $1
      • Ally, 2.25% APY, 5 years, minimum $1
      • Synchrony, 2.30%, 5 years, minimum $2,000
    • Because the interest rate is determined ahead of time, you know what your return will be. While CDs are considered liquid savings, there are penalties if you withdraw money before the CD has matured. However, it’s still available in the event of an emergency.

A Final Note!

Getting into the habit of saving is more important than the amount. Regardless of what or how you save, make sure you are saving! Creating a strong financial foundation requires having and maintaining savings accounts, so if you haven’t started saving yet, right now is the best time.

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