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How to Maximize Savings

How to Maximize Your Savings
Melissa Brock
Melissa BrockUpdated July 25, 2023
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Cost of living has been on the rise since 2021, so it's a good idea to maximize savings for both your future and more immediate goals.What exactly does it mean to maximize your savings? It means optimizing your savings so that you get the most out of your savings efforts, including tracking spending, budgeting correctly, limiting credit card spending, reducing debt, and more.Here are seven ways to maximize your savings.

Tracking Spending

First, consider implementing a process to track your own spending. List some savings goals and think about what you’re saving for. Have you always dreamed of putting a hot tub on the patio? Or, perhaps you just want to save for your children's college education? Divide your savings ideas into immediate, mid-term, and long-term goals.Whatever the goal, you need a way to track your spending. Choose the one that makes the most sense for your situation.
  • Write it down: You can keep track using a good old-fashioned pen and paper or use "notes" on your phone. 
  • Use a spending tracker app: Do you prefer to keep track using technology? You can use spending tracker apps like Acorns, Goodbudget, Mint, Quicken, You Need a Budget (YNAB), and more. Try them out to see which works best for you and integrates with your bank accounts and platforms.
  • Utilize spreadsheet monitoring: You can use a simple spreadsheet like Google Sheets to implement your budget.
  • Try envelope tracking: Labeling envelopes can help you automatically monitor your spending. You can earmark envelopes for things like "grocery shopping," "entertainment," and "clothes shopping."
Recommended: How Much Does the Average American Have in Savings?

Learning to Budget Correctly

When you budget, you create a plan in advance and execute it over a period of time, such as month to month or week to week.Start by gathering your bills and pay stubs. Next, write down your expenses (bills, credit card bills, gas, etc.), then subtract these from your income. You'll have a starting point to track your money. Figure out how much you want to save based on the difference between income and expenses.Create realistic budgeting goals, track one-time expenses, plan for emergencies, and even plan for entertainment. Put any extra money you have into a bank account, such as a savings account or money market accountYou can save money quickly if you commit to saving a large amount per month. (Just think, saving $100 results in a savings of $1,200 over a year — saving more can double or triple that amount.)The envelope savings challenge can also be a fun way to save. Gather envelopes, write a different amount of money on each one, then increase the amount by $1 per day for each envelope. Choose an envelope at random each day and save the amount of cash you previously wrote on it.Consider using a common percentage-based budget called the 50/30/20 rule, which means dividing your after-tax money in three ways — 50% on needs, 30% on wants, and 20% on savings and toward a budget to pay off debts.

Limiting Credit Card Spending

Credit cards traditionally have a high interest rate and the interest compounds on credit cards, which means you'll pay interest on interest. It can be tremendously difficult to pay off your credit card later on because the annual percentage rate (APR) averages around 24%.Limiting credit card spending can involve putting spending limits in place. Watch your credit card bills throughout the month to check on your spending. You may also want to check on whether you can move your billing date to correspond with your pay date.

Reducing Bills

How might you cut spending? Many households spend more money than they need to. If you want to reduce your bills each month, start by writing down all of your miscellaneous expenses and see what you can cut. This could include magazine subscriptions, TV streaming subscriptions, unused memberships, and more. Other ways to reduce your bills include:
  • Buy generic products
  • Use less water and electricity
  • Plan your meals
  • Take your lunch to work
  • Shop around for cheaper insurance
  • Take shopping apps off your phone
  • Buy used materials, including clothing

Thinking Twice Before Buying

Are you tempted to make a large purchase on something that doesn't fit into the budget? Many Americans make purchases on impulse for a number of reasons, including emotional reasons.Give yourself a day or two before you make a purchase. You can avoid many spur-of-the-moment purchases by having a budget in place, not shopping when you're emotional, and staying home more often.

Reducing Debt

Debt can be a major obstacle when it comes to achieving your financial goals. It can be difficult to catch up on debt if you only pay the minimum amount on your loan balances, including credit cards. List your debts in order based on the interest rate or the overall size of the debt. Here are a couple of ways to approach paying off debt:
  • Pay the smallest debt first: With this approach, you make the minimum payments on all your debts. Then, make a larger payment on your smallest debt every month. For example, if you have three debts worth $3,000, $2,000, and $1,000, you'd make extra payments on the $1,000 debt first. Once you pay off that debt, transfer the extra amount you'd been paying on the smallest debt toward the next smallest debt. Paying off the smallest debt first gives you a "quick win."
  • Pay the highest interest rate first: Similar to the first approach, you also make minimum payments in this approach. When you pay the highest interest rate first, you make extra payments on the debt that has the highest interest rate. For example, if you have three debts at an 8%, 6%, and 5% interest rate, you'd tackle the 5% interest rate first. After you pay that debt off, the extra amount goes toward your next highest interest rate debt. Paying the highest interest rate first allows you to minimize the amount you pay in interest over time. 

Taking Advantage of Employers 401k Match

If you're not contributing to your employer-sponsored retirement plan, you may be leaving money on the table. Retirement plans like SIMPLE IRAs and 401(k)s allow your employer to match your contribution to your retirement account. Check out your plan document and the summary plan description to learn more about the matching contributions for your employer's plan.Matching contributions grow tax-free while in the plan and are taxable only when withdrawn from the plan.Recommended: 401(k) vs Savings Accounts

The Takeaway

Now that you know how to grow your savings, you can figure out which approaches make the most sense for your situation.Remember, maximizing your money doesn't have to be complicated. Having a plan and diligently sticking to it can help you conquer your savings plans and goals. Lantern can help you compare high interest savings account rates to find the right one for your goals.

Frequently Asked Questions

What is the 50/30/20 rule for saving money?
What is the 80/20 rule in savings?
What is the golden rule of saving money?
Photo credit: iStock/Saranya Yuenyong

About the Author

Melissa Brock

Melissa Brock

Melissa Brock is a higher education and personal finance expert with more than a decade of experience writing online content. She spent 12 years in college admission prior to switching to full-time freelance writing and editing. Her work has appeared on Yahoo Finance, Entrepreneur, Investopedia, The Balance, FinanceBuzz, The Journal of College Admission, MarketBeat, College Finance, Rocket Mortgage, LeverageRx, Benzinga, Morty, Ally, and more.
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