How and where do I start saving money?

The best time to start saving money is now. When you look at the bills you have to pay each month, it may not seem like there is much extra to put away for down the road. But saving for your future is an extremely wise financial choice, and even starting small with saving can take you far—farther than you might think. If you approach savings with a plan and with an understanding of your options and decisions, you’ll likely find the process less intimidating than expected, and you’ll be glad you started sooner rather than later.

A savings goal—or a specific amount of money to have saved by a certain period of time—can help you determine and be disciplined in setting aside money on a daily, weekly, or monthly basis in order to achieve your target. When thinking about savings goals, it can help to think about where you need your money to go and where you want your money to go. Are you hoping to purchase a car soon? Do you have an emergency fund set up? When thinking about your goals, be sure to ask yourself if they are long-term or short-term—will you need that car in the next month, or can you wait a few years?

Savings can be set aside in a variety of ways. For example, if you’re saving for retirement, your employer will likely automatically deduct a certain amount of money from your paycheck to be put into your retirement fund. See the Investing questions on the Cultivating Currency site for more information on that topic. But what if you’re saving money for a computer or down payment on a house? Where should you put your money? Or what if you’re creating an emergency fund?

An emergency fund is an important part of saving. When a crisis (like a natural disaster or job loss) or unexpected event (you need new glasses or a car repair) comes up, you will want to be prepared. It’s wise to designate savings for an emergency fund as part of your spending plan, and good general goal is to have three or more months of living expenses available in an emergency fund.

After you have an idea of why you are saving money and what you are saving money for, you need to actually save that money—where do you keep it? If you want your money to be somewhat easily accessible, a savings account is a safe and viable option. Savings accounts are money deposited in a bank or credit union. When looking for a bank, look for an institution that is insured by the Federal Deposit Insurance Corporation (FDIC). Credit unions are member-owned cooperative organizations; look for credit unions that are insured by the National Credit Union Administration (NCUA). Like banks, credit unions have somewhat low interest rates, meaning your money doesn’t earn as much as time passes. Because these types of accounts are convenient to access and earn lower rates of interest than other less accessible options, think about using savings accounts for your short-term savings goals. At your bank or credit union, ask about different accounts—the interest rates, fees, pros, and cons associated with each type of account.

When making your savings goals, it is helpful to have at least a general idea of how much a particular item or event costs. You may have an idea of how much tuition will be or how much money you need to save before you can buy a computer. If you’re saving for a vacation, you may not know the exact costs, but you should certainly have an estimate. Many calculators exist to help you determine how much you need to save in order to meet your goal. Knowing where you plan on saving your money will give you a more specific estimate of how much you need to save over a certain period of time, as interest rates differ depending on the financial institution. Using a calculator or spreadsheet to calculate savings may also demonstrate how even a little savings each day can add up quickly.

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