1. Be consistent.
- Save automatically. Use an automatic payroll deduction to put money in your savings account. If you don't have your hands on it in the first place, you're likely to adapt your budget accordingly. Taking steps to make savings automatic will make a difference. "Anything you can do so that you don't have to physically write a check out each month will help," says Geordie Crossan, president and CEO of NBS Financial Services. "Having the money put in your savings account automatically is much easier than trying to rationalize writing a check each month."
- Give yourself a raise. That annual pay raise should mean an annual bump for your savings, too. Take at least a small portion of each salary increase to boost the amount of saving you do with each paycheck.
- Don't get frustrated. If your car needs a major repair or your furnace breaks in the middle of winter, you may have to use some of the money you've been diligently saving for other goals, but you shouldn't let that deter you, says Frank Congemi, a Registered Financial Gerontologist. "If you're saving and problems pop up, you might have setbacks," he says. "But it's better to have a setback while you're doing something, as opposed to having a setback while you're doing nothing."
2. Watch discretionary spending.
- Take stock. Before you know what spending you need to cut out, you need to know where all your money is going. "You have to have a handle on where you are today before you can realistically make changes," says Crossan. "That starts with a balance sheet." Track your income and expenses carefully for a month or two to get a handle on where you can slash costs.
- Plan ahead. The average American spends $150 a month eating out, says Ray Andrée, president of Kitchen Table Advice. A little advance planning on your weekly grocery trip can easily cut that number in half. "That's money you can put away toward retirement, big-ticket items or the unexpected expenses we all have from time to time," he says. And instead of spending $5 on lottery tickets, consider joining an office pool and contributing just a dollar. The key is to make small changes -- and make them a habit.
- Know your triggers. Maybe you can't control your spending when you walk into an electronics store -- or maybe you always have to have an extra pair of shoes. Knowing when you're likely to make an impulse buy can help you avoid buyer's remorse. "If you like to window shop, go after the store has closed, or make sure you only buy the things that are on your list," says Andrée. Vacation shoppers should also be wary, since it's much easier to spend money away from home.
- Keep your eye on the prize. Many purchases may make you happy for a brief period of time, but financial security may make you feel less stress. "Money gives you options," says Congemi. Instead of going out to eat all the time or buying new outfits, you'll have backup savings, so you won't have to be worried about what will happen if you lose your job."
3. Set goals.
- Write it down. In the back of your mind, you know you'd like to retire, save some money for your kids' educations, go on a vacation or two and do a few other things. But writing these plans down can help give clarity to those goals. Keep these goals handy, so when you're tempted to spend, you can decide if it's really worth the trade-off.
- Make adjustments when necessary. The funds required to achieve your goals are likely to be substantial, but don't get discouraged. "Sometimes it's almost counterproductive when people plug in the numbers and realize that they're going to have a shortfall," says Richard Manchester, CEO of Wave Wealth Management. "The key is to maximize that finite amount of discretionary income to achieve as much as they can with what they have."
- Use separate accounts for each of your goals. Seeing how close you are to reaching your objective will help motivate you. "Most people think saving is pretty boring, but if you've got accounts for each of your goals, you're actively engaged," says Robert Pagliarini, author of "The Six-Day Financial Makeover." "When you open up the statement and see that you have $13,000, it's not just money in an account, it's money for your first house. That will help motivate you and get excited about saving."
4. Avoid taxing situations.
- Maximize your 401(k). Your 401(k) at work is likely to be the best investment around. In addition to using pretax dollars (unless you've got a Roth 401(k)), your employer probably matches a portion of your contribution. "Even if it's only a match that's 25 cents on the dollar, that's a guaranteed rate of return of 25 percent the first year," says Crossan. "At the bare minimum, people should invest up to the full match amount."
- Use tax-advantaged accounts to help reach your goals. If you've maxed out your 401(k) at work, consider contributing to an IRA. Whether you choose a traditional or Roth IRA will determine whether you reap the tax benefits now or in the future. To save for educational goals, consider 529 plans, which will allow your savings to grow tax free.
- Take advantage of flexible spending accounts. Health care has gotten increasingly expensive, but a flexible spending account, or FSA, is a tax-smart way to pay for such expenses. Families can pay for up to $5,000 in care -- tax free -- if they put it into a FSA. And that means more money to pay for the things you really want.
5. Don't go it alone.
- Get a savings buddy. Whether it's a friend, a relative or a co-worker, find someone who will help you stay accountable and make sure you're spending your money wisely. "Once you've set a goal, they can help you stick with it and remind you to save consistently," says Andrée.
- Make sure you and your partner on the same financial page. If you're frugal and your partner's a spendthrift, be willing to negotiate to make sure you both get what you want. "Look for ways to protect your own interests," says relationship expert and author April Masini. "Consider asking to have your needs met: 'I would really feel safe if I knew we put away 10 percent of our weekly income for a rainy day' is more of a problem-solving statement than 'Your spending is making me crazy,'" she says.
- Pass it on. Good savings habits don't just benefit you -- they can benefit your children as well. By modeling good behavior, talking to your children about money, and teaching them that how to spend, save and donate their money wisely, you'll help the next generation prepare for their financial future. "Teaching your kids about money is easy to do, it makes so much sense, and it will benefit them in he long run," says Andrée.
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