Few moments have paralleled the sheer excitement I felt when I received my first paycheck in the mail. That slip of paper, and the money it represented, felt like an initiation into adulthood—something I, a teenager and part-time frozen yogurt shop employee at the time, desperately craved.
Now that I’ve graduated from the land of lemonade stands, babysitting gigs, and of course, frozen yogurt shops, the romance of money and adulthood has thoroughly worn off. Saving money isn’t as easy as collecting my dad’s loose change and dropping it in a piggy bank; it now means juggling rents, bills, debts, retirement accounts, and about a million other jargony words I don’t know how to use properly.
Thankfully, there are plenty of financial experts out there who do know how to use those words properly—and who specialize in helping people grow their savings. I spoke to three of these licensed financial planners to find out what (very specific) steps a person can take to save money and get their finances under control. Below, their advice.
1. Take a second to write down your goals.
Before you do anything else, you need to figure out what you want your financial future to look like, Doug Boneparth, CFP®, president of Bone Fide Wealth and coauthor of The Millennial Money Fix, tells SELF. “How can you get anywhere without knowing where you’re going?” he says.
So sit down with a pen and paper, call up a financial planner, gaze into a metaphorical crystal ball—or do whatever else works for you—and make a list of all the things you want to achieve financially. Do you want to buy a house? Travel? Pay off your student loans? Write it down. And don’t forget, in addition to saving for a specific goal, experts recommend that you have a separate savings account that you can use for emergencies as well.
2. Then, figure out how much money you need to accomplish those goals.
Take a second to figure how much money you need to do the things you want to do. How much will it take to pay down your student loans? How much do you need in your rainy day fund? How much do you anticipate spending on a future home, wedding, or dream vacation?
You can probably answer some of these questions on your own. But if there are any you’re struggling to answer, it might be worth calling up (or paying a visit to) a financial planner. What’s nice: Some places, like Fidelity, let you set up first-time meetings with financial analysts for free. So you don’t have to worry about shelling out cash while you’re trying to save it.
As for how much emergency savings you need on hand, experts like Marshay Clarke, a licensed financial planning professional at Betterment, recommend storing up three to six months worth of expenses in a “rainy day fund” or in-case-of-emergency savings account. So if you currently spend $4,000 a month on housing, utilities, food, entertainment, and whatever else you’re regularly buying, you should aim to keep between $12,000 and $24,000 in your rainy day fund.
3. Then, prioritize your goals from most to least important.
Once you have your goals established and quantified, figure out which ones you care the most about. Odds are, you’ll have competing priorities. So number your goals based on what’s the most important to you.
Not sure where to begin? Clarke tells SELF that getting your debt under control is a good place to start. She recommends prioritizing your monthly bills, then simultaneously balancing debt payments, emergency savings, and retirement contributions. Once you have your debt payments handled and emergency savings built up, you can start investing in other things—like a vacation fund.
4. Spend the next three to six months tracking your cash flow in the way that makes the most sense to you.
Pretty much any financial planner you talk to will tell you to track your cash flow. Why? Because understanding your expenses will help you figure out exactly where you’re going right—and exactly where you’re going wrong—when it comes to meeting your goals.
Boneparth says you should start by creating a budget based on what you hope to spend in a given month. If you don’t know where to begin, Wendy Liebowitz, CFP®, the vice president branch manager for Fidelity Investments in Fort Lauderdale, Florida, suggests using Fidelity’s 50/15/5 rule: Put 50 percent of your money toward essential expenses (rent, bills, etc.), 15 percent toward your retirement account, and 5 percent toward your savings. The other 30 percent is yours to spend or save as you see fit. (Remember, this is just a rule of thumb, but it’s a good place to start if you’re totally lost.)
Once you’ve got your budget taken care of, you should spend three to six months tracking your cash flow, Boneparth says. Now, let’s be real—spending a few hours logging your cash flow in a journal every day sounds both hellish and impractical. But thanks to technology, you have some options, Clarke says.
You can use online banking, download a budgeting app, or keep detailed notes on your phone. The point is for you to have realistic data to look back on, so don’t overwhelm yourself; the goal is to find something you can reliably do for three to six months.
5. Then, take a second to reconcile your goals with your actual spending.
Once your tracking period is over, give your expenses a good, hard look, and see how they compare to your goals.
“Let’s say your goal was to save $2,000 a month, but you’re only saving $1,000,” Boneparth says. “My question would then be: Are you going to change your behaviors or change your goals? Either is acceptable.”
In other words, if you aren’t where you want to be, are you going to extend the timelines for your savings goals, control your spending a little more, or do some combination of the two? Remember, there’s no wrong answer. These are your goals and your expenses, and you’re the one who gets to choose how to change them.
6. While you’re figuring out how to achieve your goals, don’t forget about tools that can help.
Keeping all your money in one place can make your expenses, savings, and financial goals hard to keep track of. What’s easier: separating your money into different accounts—each with its own distinct purpose, according to Clarke.
Here’s a quick run-through of what that might look like:
- A checking account where you save all the money you need for monthly expenses
- A savings account where you keep your rainy day fund
- An investment account where you save for future vacations
- An investment account you use for other, longer-term savings
Your goals probably won’t look exactly like this. But locking them down and compartmentalizing them in this way can help you see how well you’re meeting your goals, which can make them easier to achieve, Clarke says.
7. And yes, that means automating wherever you can.
Technology is a beautiful thing—take advantage of it. If you have a hard time staying on top of regular debt payments, monthly bills, and savings contributions, good news: You can just make a computer do it for you.
Some pro tips, straight from Clarke:
- If you get a direct-deposit paycheck, you can automate different parts of that paycheck to go into different accounts—say, a chunk for your bill-paying account and a chunk for your travel savings account. Talk to your HR or finance department, set up automatic transfers, and let the computer take it from there.
- If you pay for rent, utilities, or any other service online, odds are, you can automate that bill payment. Just make sure you have enough in your account each month when it comes time to pay the bill.
- If you make debt payments online, you can probably automate that, as well.
8. Are you taking full advantage of your employer’s retirement benefits? If not, start.
If you have an employer-sponsored retirement plan, like a 401(k), your employer might offer you a matching contribution. That means they’re willing to help you fund your retirement—AKA give you money, practically for free.
Let’s say your employer is willing to put 10 percent of your monthly income toward your 401(k) for every 10 percent you contribute to it. That’s akin to your boss saying, “If you put $500 (or whatever 10 percent of your monthly income is) toward your 401(k), I’ll also put $500 in there!” Odds are, it’s a little bit more complicated than that, but it’s still a no-brainer offer, Clarke says.
So talk with your HR department to get the low-down on retirement savings in your office. Remember, Liebowitz recommends putting 15 percent of your monthly paycheck toward your retirement account. If that seems hard, she recommends starting at 10 percent and increasing your contributions by 1 percent every year until you hit 15.
9. And check out what credit card rewards you have access to. You might have free money awaiting you.
Credit cards can be useful—as long as you’re disciplined about paying your balance in full every month, Clarke says. (She recommends automating monthly credit card payments, and making sure you spend less than you bring in every month.)
An added bonus, according to Clarke: Most credit cards offer rewards—like travel points and cash back—to people who regularly use them and stay on top of their payments.
You can call your bank to find out what rewards your particular card offers. And if you don’t have a credit card yet, you can research different cards and their rewards plans to find the best fit for you.
10. Take a second to learn more about financial stuff you’re interested in.
Once you’ve completed the previous nine steps, you’ll probably be in a pretty good spot—or at least, well on your way to being in a good spot. What’s left? Further educating yourself about finances, investments, and the like, according to both Liebowitz and Boneparth.
Boneparth suggests looking up anything you’re interested in learning more about: estate planning, college planning, taxes—you name it. Search these topics online, and study up. “It’s tax season right now, and I’m sure most people don’t know what a 1040 form is and what’s on it,” Boneparth says. “I’m not saying you need to do your own taxes, but having a basic understanding of these things is going to put you in control.”
And Liebowitz says Fidelity has tons of educational resources—articles, or videos for the more visually inclined—for anyone looking for a crash course in personal finance.
11. Be sure to enjoy your hard work.
Let’s say you’ve saved enough money to go on that vacation you’ve been dreaming about or buy that home you’ve always wanted. Congratulations are in order—you’ve made it to the finish line, and that money is ready to be spent.
But according to Clarke, it might be hard to part ways with your nest egg. And while you certainly shouldn’t spend your retirement savings or rainy day fund (unless an emergency arises), you’ve earned this treat. You saved that money for the sake of eventually spending it. Enjoy it.
Plus, once you’re done reaping those benefits, you can always set a new goal to work toward.