• Adulting Is Easy (Lauren)

8 Ways to Increase Savings

You know taking care of money is a huge part of adulting. You also know saving is important, for emergencies, retirement, and other goals. Whether you’ve already been able to save or you’re still struggling to get started, the following 8 tips are great ways to save.


1. Reduce Discretionary Spending

Your discretionary income is what’s left over once you pay taxes and pay for your necessities, like utilities, mortgage/rent, food, etc. Examples of discretionary spending include vacations and entertainment. Add up what you’re spending on non-essential items each month and see where you can cut down. This might mean choosing casual versus fine dining (something my husband and I have recently started doing) or dialing back your cable subscription (which we did last year). Cutting discretionary spending does not necessarily mean cutting quality of life, and this is a great place to start. Discretionary spending should be less than 30% of your income, according to most sources.


2. Reduce Credit Card Debt

You can reduce consumer debt in two ways: 1) by paying off balances or 2) by decreasing the interest rate. I suggest doing both. If you are carrying balances on your credit cards, pay those down by paying more than the minimum. You should even call your credit card companies and ask for a lower rate. If you’ve been making timely payments, they might oblige. There’s also the balance transfer method, in which you apply for a card that allows balance transfers and has a lower rate. This new card could even have an introductory 0% period, just make sure to pay attention to when that ends and do NOT do any new spending on that card. Once you have low or no credit card payments, you’ll be left with more cash to save.


3. Automate Savings

Automating your savings is a great way to get going, especially if your income is steady, i.e. you work an hourly job and usually get the same number of hours or you’re salaried. If you make much more than you spend, even if it’s not steady, you can easily automate your savings. You can automatically have money go directly from your paycheck (if your employer allows this) into a savings account or you can automate transfers. Even if you start with 5% and slowly increase it over time, you’ll be surprised how fast your savings builds up. I don’t suggest automating savings if it might lead to over drafting and fees.


4. Commit Irregular Sources of Income to Savings

If you’re one of the 37% of Americans with a side hustle, this tip is for you. Pay your bills with your main job and save all the money from your side hustles. I have a friend who does gigs with a band and another who designs tattoos. If you don’t count on this money for bills, it’s a great way to save.


5. Pay with Cash

Paying with cash would be one way to understand and really feel how much money you spend every month. In our budget-focused blog and podcast, we discuss the envelope method, in which you put your budgeted amount of cash in categorized envelopes at the beginning of each month. Naturally, you’ll pay more attention to your spending and you’ll have a visual reminder of when your getting low in some areas. Then you’ll spend less and be able to save more money. Note that I don’t necessarily recommend this because it’s not safe to carry cash around, but I wanted to include it in case you thought it would work for you.


6. Save For Retirement Through Qualified Plans

Many employers offer employer-sponsored retirement plans, with 401(k)s and IRAs being the most popular. These plans offer tax benefits, and the employer probably will match some of your contribution. One of my friend’s employers matches up to 4%, so if she contributes 4% of her income, she’s doubling her money. Where else can you get a 100% return?


7. Commit Future Pay Raises to Savings

Some of the best advice my dad ever gave me, and some I’ve passed on to my friends and family is that you should allocate some of your raises to savings. Take my friend from #6 for example. She started by putting 4% in her 401(k) to get the full company match. Say her next raise is 3%, she will up her 401(k) contribution 1% to 5%, which means she’ll effectively still be getting a 2% raise (excluding the tax benefits). Even if you’d rather not put more into your retirement plan than your employer will match, you could set aside 1% more into a savings account, brokerage account, or another investment fund. Over time, your savings will eventually get to where it needs to be, about 20% according to most experts.


8. Cap Student Loans with Income Driven Repayment

Federal student loans have a standard repayment plan of 10 years, and borrowers make the same payment for that entire period. There is an option to have payments capped at 10% of discretionary income (if loan was issued after July 1, 2014) or 15% (if loan was issued before that) through income-driven repayment. You would then have eligibility to have your loan forgiven in 20-25 years, depending on when you took out the loan. Note that you may end up paying more over that period years than you would have on the standard 10-year plan, however, you’d have more discretionary income for saving and investing early on in your career. For move info, visit debt.org and consult and adviser.


We personally routinely audit our discretionary spending, automate savings, commit “extra” income (rent) to investments, save through retirement plans, and put raises towards savings. What about you? What other tips do you recommend?

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