How to Start Saving Money Even if You Think You Can’t Afford It

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A hand drops coins into a glass jar labeled "save"
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I won’t sugarcoat it: Saving money isn’t the easiest task.

But I’m here to tell you it’s possible to save money without living off ramen, recruiting seven roommates and giving up all of life’s pleasures.

Not sure where to start? Without a plan, it’s easy to become overwhelmed and frustrated.

Don’t worry. Just follow these steps -- one at a time, please! -- and you’ll discover that the money-saving journey isn’t so bad, even if you are on a tight budget.

1. Track Your Expenses

Before anything else, you’ll need to take a look at how much money you’ve spent in the past few months. No, it might not be pretty, but you need to see this so you can identify your problem areas.

Instead of combing through your bank statements, the Empower app can automate the process for you.

2. Set Short- and Long-Term Savings Goals

Now that you have an overview of your spending habits, it’s time to set some realistic short- and long-term savings goals.

Here’s the difference:

Implement a short-term savings goal when you need to save money fast. Maybe you’re saving $200 for a plane ticket home. You could also start an emergency fund and set a short-term target of $500 in three months.

If you have a loftier goal, commit to a long-term savings plan. A few examples include saving for a down payment on a home or a college fund for the kids. If you’re looking really long term, think about retirement.

It’s important to have both goals in place so that you enjoy the now while planning for the future.

3. Create a Budget

Personal finance 101: With your savings goals in mind, take a look at your spending. Set some limits for yourself.

The key? Be realistic. If you spend $500 a month on groceries, don’t set your new food budget to $200. That will require an entire lifestyle change.

If you’re not sure where to start, find some structure with these two popular methods:

  • The 50/20/30 budgeting method breaks your expenses into percentages: 50% for living, 20% for financial goals and 30% for personal spending. People like this plan because it offers some built-in flexibility with personal spending.
  • The 60/20/20 budgeting method also breaks down your expenses into percentages. In this case, 60% of your income is for lifestyle expenses (food, water, shelter -- your needs), 20% is for discretionary spending (fun money) and 20% is for saving. Financial advisers recommend this plan, because it prioritizes your needs over your wants.

Creating and sticking to a budget takes some finessing, so be patient with yourself.

4. Be Smart About Where You Stash Your Savings

Where are you going to keep the money you’re saving? Consider some options that’ll yield interest or returns so that your money isn’t sitting stagnant.

Here are a few ideas:

  • A high-yield savings account allows you to access your savings easily while also earning some interest. I suggest finding an account that offers 2% APY (annual percentage yield) or higher. It’s great for an emergency fund or vacation stash.
  • A certificate of deposit (CD) will earn you higher interest. However, CDs have fixed maturity rates. That means if you put your money into a five-year CD, you can’t access it early, or you could face penalties and fees. You also can’t add money to a CD.
  • Stocks and bonds are two popular ways to invest. Both are ideal for long-term goals, such as retirement savings. Stocks carry a higher risk, and you could potentially lose money. However, if you’re willing to ride out the market’s ups and downs through the years, it could pay off. Bonds tend to be lower risk, but so are the returns. As a general rule of thumb, the younger you are, the more risk you can afford.

This story was originally published by The Penny Hoarder.

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