Advertiser Disclosure
Advertiser Disclosure: The credit card and banking offers that appear on this site are from credit card companies and banks from which MoneyCrashers.com receives compensation. This compensation may impact how and where products appear on this site, including, for example, the order in which they appear on category pages. MoneyCrashers.com does not include all banks, credit card companies or all available credit card offers, although best efforts are made to include a comprehensive list of offers regardless of compensation. Advertiser partners include American Express, Chase, U.S. Bank, and Barclaycard, among others.

How to Maximize Your Savings Rate – 12 Tips to Save More Money


You’re probably familiar with the annoying adage that “it takes money to make money.” There’s a measure of truth in it. The more money you can put toward investments that generate passive income, the more income you earn. The more capital you have to launch a business, the greater its odds of success.

What no one tells you is where to find the initial money to invest.

That’s because it’s an answer no one really wants to hear: You have to live far, far below your means and save it. You have to maximize your savings rate, the percentage of your net income that you put toward savings and investments.

In fact, Charlie Bilello, research director at financial advisory firm Pension Partners, demonstrated to Marketwatch that your savings rate has a greater impact on your wealth than returns on investments, even though ROI gets all the glamour and coverage in the financial media.

The price of building wealth is a high savings rate, which takes discipline. It’s not fun to drive a 7-year-old Honda while your colleagues and friends drive brand-new BMWs. But if you want to build true wealth, it’s time to get serious about your savings rate and start funneling money into growth- or income-oriented investments that will make you truly rich, instead of just rich-looking to your friends.

Tactics to Maximize Your Savings Rate

Boosting your savings rate is partially about budgeting, but spending less is more a behavioral problem than it is a math problem.

Some of the tips below are tricks or hacks to help you spend less while achieving a similar quality of life. Some are about reducing wasted money, others about automating savings, and others about raising your income. All require a heightened sense of priority toward accumulating wealth.

Remember, as you set about raising your savings rate, that it’s more about adopting a mindset than it is about any one tactic or action. If keeping up with the Joneses is a priority for you, don’t expect to ever save much money, because there’s always someone with a ritzier lifestyle you compare yourself to.

Start internalizing a desire to build real wealth. It takes patience, time, and discipline, none of which is sexy. But there’s no more effective way to build long-term wealth than by investing every possible cent in high-ROI investments and letting the returns compound.

1. Set a Target Savings Rate Before Setting Your Budget

Target Savings Rate Piggy Banks Arrow

When most people create a budget, they start with their expenses. Then, they think about saving whatever is left over. That’s like continuing all your current eating habits when you’re trying to lose weight. It misses the point: to cut.

Instead, start with a target savings rate, and the higher it is, the faster you can build wealth.

For example, consider retirement savings. Today’s investment advisors recommend a 15% savings rate for adults looking to work a normal 40- to 45-year career, followed by a 20- to 30-year retirement with a 4% withdrawal rate. See this piece on PlanAdviser for some of the math and reasoning behind that 15% baseline.

But what if you don’t want to work for 40 to 45 years? Simple: Boost your savings rate to chop away at the number of years you have to work. I’ve known teachers who retired before turning 30 by saving and investing 75% of their income.

The first step is setting a target savings rate. Pick a percentage, look at what that leaves you to spend, and then budget your expenses based on that figure.

2. Automate Your Savings

Online Banking Laptop Coffee Desk

Remember, saving more money is a behavior problem. The more you rely on discipline to save, the less likely you are to meet your target savings rate.

Instead of relying on yourself to only spend a certain amount, get the money out of your checking account before you can spend it. My favorite technique is to set up automated recurring transfers to take place every time you get paid. On payday, you get a direct deposit, and within 24 hours, there’s an automatic transfer to your brokerage account, savings account, or debt you’re trying to pay down.

Another way to corral your future behavior is by putting your savings or brokerage account a little further out of sight and out of mind. Set your savings or brokerage account up at a different bank or financial establishment than your main checking account so you don’t see it on your dashboard when you log into your checking account’s online banking.

There are even mobile apps that automate your savings for you.

If you’re investing in equities, set up automated investments to take advantage of dollar-cost averaging and reduce risk in your stock portfolio. It’s the same principle at work: Automate the “right thing to do” so that you don’t get skittish or greedy and tempted to try to time the market.

Easiest of all is automating recurring payments to pay down your credit cards and other high-interest debt.

3. Pay Off High-Interest Debt ASAP

Pay Off Debt Paper Pen

I know I said earlier that savings isn’t a math problem, but here’s a math problem to consider: If you have credit card debt at 24% interest, and you have an investment opportunity you expect will earn 10% ROI, should you put your savings toward paying off your credit card debt first or investing money first?

It’s not a trick question. You have an effective return of 24% by paying off the debt, compared with a possible return of 10% on the investment. Do everything you can to pay off the credit card debt as quickly as possible. The interest you pay by carrying a balance is lost money – money that you can’t put towards building wealth.

If you have unsecured personal debt costing you more than 7% to 8% interest, prioritize it. Try using the debt snowball or debt avalanche methods, tried-and-true approaches to paying off debt quickly.

Secured debts, such as mortgages and auto loans, tend to charge less interest, making them a lower priority. Consider leaving them in place as you start investing money.

4. House Hack to Reduce or Eliminate Your Housing Payment

Room For Rent Coins Stacked Sign Blocks House

Housing is the biggest expense in most people’s budgets. That means it has the biggest potential to save you money.

There are many ways to “house hack” and have someone else pay your housing bill for you. The classic model is to buy a small multi-unit property, move into one of the units, and rent out the others. You can even use an FHA loan with a 3.5% down payment to finance it.

You can also build an accessory dwelling unit – also known as an in-law suite or granny flat – and rent it out. Or you can rent out a room in your house; in my first house, my housemate paid nearly three-quarters of my mortgage.

If you don’t like the idea of a permanent housemate, you could rent out rooms on Airbnb occasionally to bring in some extra money. Or you could forego other humans altogether and simply rent out storage space on Neighbor or Store At My House.

My business partner Deni got even more creative and brought in a foreign exchange student through a service that pays a generous monthly stipend. That stipend covers over half her mortgage.

Far too many people make the mistake of thinking that their housing payment is fixed. It’s not.

5. Get Rid of a Car

Gray Car Parked Outdoors Sunset

Transportation is the second-highest expense in most people’s budgets. And it’s far, far higher than most people assume.

The cost of owning, maintaining, and driving a car includes not just the car payment, but also insurance, gas, maintenance and repairs, and parking. The average cost of car ownership in the United States is nearly $9,000 a year, according to AAA. That’s a big dent in your budget.

First, seriously consider living without a car or sharing a car with your spouse, significant other, or housemate. Most people immediately dismiss the idea, but take the time to truly think through the implications and what you would give up compared with what you would save.

Could you bike or walk to work instead? Carpool? Take public transportation? Utilize ridesharing programs like Uber and Lyft more effectively? Start thinking outside the box and look for ways to save money on transportation costs.

6. Cook (Almost) Every Meal at Home

Cook Bake At Home Mother Daughter Kitchen

The third-largest expense in most people’s budgets is food.

Sure, a dinner out is nice every once in a while, but that’s an entertainment expense, not a food expense. Beyond charging several times the cost of the ingredients, restaurants also mark up beverages such as wine by 200% to 400%, according to Business Insider – not to mention the extra 15% to 20% for a tip. Which says nothing of babysitting costs if you have children.

Restaurants, take-out, delivery – it all costs far more than cooking your own meals.

Set a lower food budget based on the costs of cooking every meal – breakfast, lunch, and dinner – at home. If time or energy at the end of a long workday is a problem, try these recipes for make-ahead freezer meals.

Save money on lunches by bringing lunch to work every day. Check out these cheap brown bag lunch ideas for adults and healthy school lunch ideas for kids. My wife and I cook a double portion for dinner, so we have leftovers to take for lunch the next day. Try these recipes and tips to make the most of your leftovers.

The more I cook, the more I enjoy it, and the better I get at it. It’s a virtuous cycle. Start with easy recipes for your favorite meals. Stop paying someone else to prepare your meals, and start doing it yourself if you want to get serious about savings.

7. Cut Cable

Cut The Cable Cord Tv

If there’s one obvious expense to cut in today’s world, it’s cable television. The average monthly cost of cable TV in 2018 was $107, according to Fortune. That’s $1,284 every year.

Meanwhile, Netflix starts at $8.99 per month, Hulu starts at $7.99 per month, and Amazon Prime costs $12.99 per month. Get rid of cable and try an online streaming service instead.

Or better yet, get rid of your TV subscription entirely. Watching TV costs more than just money. When you ditch your TV habit, you lose less time to the couch, spend more time with your family and friends, and can get involved in hobbies – perhaps even a hobby that pays you.

8. Cancel All Non-Essential Subscriptions

Finger Hitting Cancel Button On Keyboard

Chances are, cable TV isn’t the only subscription you’re losing money to each month. Sit down and look at your last two months’ statements. What recurring subscriptions are you spending money on that aren’t dramatically improving your life?

For example, subscription boxes have grown to a multi-billion dollar industry in the United States. Companies love the subscription model; they only have to make one sale, but they get to keep earning money from you every single month. But are subscription boxes worth the cost to you? Pick through your subscriptions with a fine-tooth comb, and cancel every one of them that doesn’t leave you jumping for joy each month.

9. Switch to a “Generic” Phone Plan

Selecting Phone Plan Company Provider Options

The four largest mobile phone carriers – Sprint, Verizon, AT&T, and T-Mobile – spend a massive amount of money on branding. They charge premium rates to customers who are willing to pay for their brand names.

Yes, they also maintain large mobile coverage networks. But they don’t use their networks exclusively; they sell access to “generic” carriers to use the same networks. For example, Boost Mobile uses Sprint’s 4G/LTE network. Cricket uses AT&T’s wireless network. MetroPCS uses T-Mobile’s network.

It’s just like buying generic versions of prescription drugs. The active ingredient (the network) is the same; the only difference is the branding. Read up on these ways to save money on your cell phone plan, and stop paying for branding.

10. Get a Raise

Businessman Employee Celebrating Success Raise Good Business Goal

Boosting your savings rate isn’t only about spending less. You can attack the problem from the other direction as well by earning more. The trick, of course, is to avoid lifestyle inflation and keep your expenses down even as your income rises.

One way to do this is to get a raise by pursuing a promotion at work. Try these tips to lay the groundwork for getting a raise and promotion at your current job. When the time comes, approach your boss for a raise and make a compelling case for your worth.

If that fails, look elsewhere. Often, employees can secure a greater raise by finding a new job than they can by negotiating with their current employer.

Just be careful not to job-hop too often, as it can leave you a less attractive candidate to employers looking to fill a position for the long term. Also keep in mind that starting a new job comes with plenty of extra work as you learn the new company’s technology systems, ways of doing business, company culture, and your new colleagues.

11. Start (or Expand) a Side Gig

Side Hustle Letters Blocks

No one says you have to get a raise to earn more money. More Americans than ever before now participate in the gig economy – over 36%, according to a 2018 Gallup poll.

Side gigs not only bring in more money, but they also diversify your income streams and can offer access to tax deductions not available to traditional W-2 employees. Many employees start a side business while still working full-time and then grow it from a side gig to a full-time business.

If you aren’t sure what kind of side gig to start, here are some popular side gig ideas as a starting point. Freelancing is a great way to start; try these tips to earn more money as an online freelancer.

Again, as your income rises, be sure to keep your expenses low to raise your savings rate. Most people fail to do this and succumb to lifestyle inflation, which leaves their savings rate unchanged or even lower.

12. Capitalize on Matching Contributions

401k Contributions Matching Company Employer Savings

Who doesn’t love free money?

One way to effectively increase your savings rate is by taking advantage of employer contributions to your retirement savings. Many employers offer matching contributions as a way of offering retirement benefits for only those employees who will actually value them.

For example, say your employer offers 100% matching for the first 4% of your salary that you contribute to your 401(k) or 403(b) account, and 50% matching for the next 4% you contribute, for a maximum employer contribution of 6% of your salary. That’s an extra 6% in your effective savings rate, free of charge. All you have to do is what you should be doing anyway: saving money for your retirement.

Don’t assume that you know everything about your company’s benefits. If you don’t have a crystal-clear understanding of your employer’s retirement benefits, make an appointment with your HR department. Ask about matching contributions, and even if they don’t offer them, still consider putting money in the company 401(k), as contribution limits are several times higher than for an IRA.

Final Word

Maximizing your savings rate isn’t fast, and it isn’t sexy. It’s the opposite of a get-rich-quick scheme. But it’s the most reliable way to build wealth.

Cut your spending – dramatically. Raise your income as much as you possibly can. Pay off your high-interest debts. Automate your savings and investments, and reinvest dividends to maximize compounding. Forget about stock tips and get-rich-quick tactics. Focus on the fundamentals, and you will become wealthy.

It takes money to make money, after all, and the first place to start sourcing that money is your own savings.

What are your favorite ways of saving more money? What do you plan to do with the money you save?

G. Brian Davis is a real estate investor, personal finance writer, and travel addict mildly obsessed with FIRE. He spends nine months of the year in Abu Dhabi, and splits the rest of the year between his hometown of Baltimore and traveling the world.