How to save money: a practical guide to finally putting money aside

Why “saving what’s left” almost never works

Most people try to save at the end of the month. The problem: spending tends to expand to fill the money in the account, and exceptional costs (a repair, a gift) are almost always underestimated. By month end nothing remains, and we wrongly conclude we “can’t save”.

The fix is to reverse the order: pay yourself first. The day money arrives, part of it goes straight to savings. You live on the rest. Same amount, different order, completely different outcome.

The power of committing in advance has been measured. In their Save More Tomorrow programme, economists Richard Thaler and Shlomo Benartzi asked US employees to pre-commit part of their future pay rises to their retirement plan, with contributions rising automatically at each raise. Their average contribution rate climbed from 3.5% to 13.6% over 40 months; 78% of those offered the plan joined, and 80% stayed through the fourth raise. A decision made ahead of time, then automated, beats the good intention of the day.

Step 1: build an emergency fund

Before any other goal, protect yourself from surprises: a breakdown, a medical bill, a gap in income. Without that cushion, every surprise turns into debt or an overdraft. The Federal Reserve’s latest survey of US households found that 63% of adults would cover a $400 emergency with cash or its equivalent, and only 55% had a rainy-day fund covering three months of expenses: 75% of those earning $100,000 or more, but 21% of those under $25,000.

• First milestone: one month of essential costs (housing, groceries, transport, bills). Some guides suggest a first $500.
• Target: the UK’s government-backed MoneyHelper suggests three to six months of essential outgoings. The US Consumer Financial Protection Bureau doesn’t set a number: it suggests basing your goal on what past emergencies cost you. Lean towards more if your income is irregular or you’re the only earner.
• Where to keep it: in a separate, instant-access savings account you don’t see every day. Check it’s protected: in the US, the FDIC insures deposits up to $250,000 per depositor, per insured bank, per ownership category; in the UK, the FSCS protects up to £120,000 per person, per authorised firm. The goal is availability, not return.

Example: if your essential costs are $2,000 a month, your first milestone is $2,000 and your target sits between $6,000 and $12,000. Saving $200 a month reaches the first milestone in ten months.

Step 2: decide how much to save each month

There’s no universal number. Three ways to set yours:

1. As a percentage. The 50/30/20 rule suggests 20% of take-home pay for savings and debt. If that’s too much, start at 5% and add a point every three months.
2. From the goal. Target ÷ months left. A $1,000 trip in 10 months = $100 a month.
3. From your real budget. List your spending, keep a buffer for surprises, and save the rest at the start of next month.

Step 3: give every goal a name

“Save more” motivates nobody. “$1,000 for the Lisbon trip in June” does. An effective goal has:

• a concrete name;
• a precise amount;
• a date;
• a progress bar that shows where you stand.

Split the goal into milestones (25%, 50%, 75%): each one reached is a visible step, and every deposit, however small, moves the bar.

Step 4: automate

Automation takes the decision out of your day. Set up a standing transfer to your savings account on the day your pay lands. You stop seeing that money, so you stop spending it.

If your income is irregular, automate a percentage rather than an amount: every payment you receive, 10% goes to savings. Other easy wins: split your direct deposit so part of your pay lands straight in savings, and save part of any tax refund, which the CFPB suggests as a simple boost. Round-up features are a nice way to start, but they’re a top-up, not a strategy.

On a low income in the UK? Help to Save lets eligible Universal Credit claimants save £1 to £50 a month and adds a 50p government bonus for every £1 saved, paid after two and four years (up to £1,200 in bonuses).

Step 5: find the money to save

If the budget is already tight, look here first:

• Subscriptions: search the last 90 days of statements for every recurring charge and cancel what you don’t use.
• Groceries: a list, a weekly meal plan, and one shop a week where possible.
• Bank and transfer fees: compare, especially if you send money abroad regularly.
• Impulse purchases: use the 48-hour rule. If you still want it two days later, buy it.
• Energy: lower the thermostat by a degree and set it back at night and while you’re out; read your meter monthly to see the effect.

Savings challenges to get started

Challenges make saving playful and regular. The best known:

• The 52-week challenge: week 1 you save $1, week 2 $2… week 52 $52. Total: $1,378 in a year. Watch out: the last four weeks alone cost $202, right at the holidays. Two variants: run it in reverse (start at $52 while motivation is high), or save a flat $26.50 a week for the same total.
• The no-spend challenge: one month without non-essential spending. Bills and basic groceries are still allowed.
• The 100-envelope challenge: 100 envelopes numbered 1 to 100; each day you draw one and put in that amount. Total: $5,050 in 100 days, about $50 a day on average, so it doesn’t suit a tight budget.

Sinking funds: saving for costs you can see coming

A sinking fund is money set aside monthly for a known future cost, so it never becomes an “emergency”. Divide the yearly cost by the months left:

Keep sinking funds apart from your emergency fund, so a planned expense never eats into your safety net.

Saving on a small or irregular income

With little room, consistency beats size. $10 a week is $520 a year, and above all a habit. A few rules:

• save a percentage of every payment, however small, instead of a fixed monthly amount;
• in good months, save more to cover the lean ones;
• keep the emergency fund in a different account from your everyday money.

Saving together

For a shared project (a trip, a group gift, a wedding), a shared goal replaces spreadsheets and reminder messages: everyone sees how the pot is doing. And if you’d rather have each member receive the group pot in turn, that’s a rotating savings circle: a tanda, susu, chama or tontine, depending on where you live.

Mistakes that hold saving back

• Relying on willpower. Automation beats motivation.
• A goal that’s too big and too far away. Break it into milestones.
• Dipping into savings for wants. Separate accounts add a little helpful friction.
• Waiting to earn more. Habits built on a small income stay when it grows.
• Guilt after a bad month. Pick up again next month, no forced catch-up.

In short

To save money, pay yourself first, automate it, and give every dollar saved a clear destination. Build the emergency fund first in a protected, instant-access account, then add sinking funds and named goals with dates. First action: set up an automatic transfer on your next payday, even if it’s $20.

Sources

• Richard H. Thaler and Shlomo Benartzi, “Save More Tomorrow: Using Behavioral Economics to Increase Employee Saving”, Journal of Political Economy, 112(S1), 2004: doi.org/10.1086/380085.
• Elizabeth Warren and Amelia Warren Tyagi, All Your Worth, Free Press, 2005 (50/30/20 rule).
• Board of Governors of the Federal Reserve System, Economic Well-Being of U.S. Households in 2025 (SHED), May 2026: federalreserve.gov.
• CFPB, “An essential guide to building an emergency fund”: consumerfinance.gov.
• MoneyHelper, “Emergency savings – how much is enough?”: moneyhelper.org.uk.
• FDIC, “Deposit insurance at a glance”: fdic.gov; FSCS deposit limit: fscs.org.uk.
• GOV.UK, “Help to Save”: gov.uk/get-help-savings-low-income.

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