Clueless About Saving? Here Are Seven Steps to Start.

How to Start Saving When You're Clueless

If you think about it, personal finance is kind of obvious: Spend less than you earn, then invest the rest. Boom, done.

But obvious doesn’t automatically equal action. If so, I think we’d all be pretty rich already.

Most of our financial scripts are learned through the people around us: people on TV, our friends, our parents. And chances are, you grew up watching them spending money.

In contrast, saving is this invisible, hidden thing that doesn’t really come up in conversation.

When is the last time someone in your life showed you exactly how to save? If someone showed you when you were a kid, then congratulations for winning the lottery. The rest of us, however, weren’t so lucky.

So it’s easy to see how we end up being pros at spending money, and at the opposite spectrum, totally clueless about saving.

Judging from the emails I’ve been getting lately, figuring out how to save is like a shrouded mystery that only The Chosen have the ability to do.

You want to save, but you don’t exactly know how. All you know is that you seem to never have any money left over at the end of the month.

I used to think whatever money leftover in my checking account was “savings.” Using that strategy I wasn’t getting anywhere fast. So today I’ll walk you through the exact steps I took to find more money to save, even when I made entry-level salaries in expensive cities.

1. Setting Up a Separate Savings Account

As per this article, I used to only have a checking account. I first started by setting up a savings account at a bank that was different from my checking account. That way my savings weren’t immediately accessible, because transferring money took 2-3 days. I wanted to reserve my savings for legit reasons, not because I overspent on Sephora one month. Creating this separation also had a psychological benefit: I was intentionally creating a “home” for my savings to live. Saving was now going to be prioritized.

2. Tracking My Existing Spending

This step was key. I couldn’t manage what wasn’t being measured.

I realized I couldn’t realistically figure out how much I could save unless I knew how I was already spending my money. I knew a couple main expenses off the top of my head, but not the nitty gritty.

The nitty gritty matters. We’ll learn why later.

So I signed up for Mint and connected all my bank accounts and credit cards to it. If you’re in the US, and naturally spend less than you earn, I would highly recommend using Mint. I used my credit card for every single transaction so it gets automatically tracked. Then I spent like I normally would, letting Mint keep tabs for a few months so I could get an average of how much I was spending per category.

The bars and graphs that get automatically generated are my favorite part. Here’s an example of one year’s spending broken down by months. I can then click on each bar to see all the transactions from that month.

Mint Annual Spending by Bar Chart

Disclaimer: Mint tracks your spending AFTER the fact, so if you’re looking for a tool to keep you from spending, well, Mint isn’t it.

The best tracking system is the one that you’ll actually use. I know that I’ll never ever be someone who’s going to manually track everything with a spreadsheet, because it’s not convenient. Mint works well enough for me and my specific spending habits as long as I check it on a regular basis.

What works for me won’t necessarily work for you, so here are some other tools you can try:

  • An old-fashioned spreadsheet. I really like the looks of this Google sheets one, because there’s nothing old-fashioned about it at all. Charts, formulas and pretty colors? OK, so I added the pretty colors myself. I feel bad that I forgot where I found this spreadsheet and can’t actually credit the actual creator of it. But thank you, person!
  • You Need a Budget. I’ve never used it, but people swear by it.
  • The Numbers app on your iPhone. You can read more about how it works on Dirt Cheap Wealth’s post called “The One Killer Personal Finance App in Your Phone That You Didn’t Know About“. The post has helpful screenshots, too!
  • If you want to get started ASAP, you can set aside a weekend day to go through your last couple month’s worth of credit card statements. Then tally everything up. Most credit cards have “spend analyzers” these days to help categorize your spending.

If you have issues with impulse spending, I still recommend starting with manual tracking so you practice thinking more consciously about what you buy.

It took me a while to track my spending, and my only regret is I wish I started doing it earlier. I’m missing some insights from the early days I’d love to have now.

3. Finding My “Too Much Money” Thresholds

After a few months went by, I discovered some horrifying things about my spending.

I was pretty mad at myself after seeing how those $11 Whole Foods sushi rolls were really adding up. I’d walk there almost every day with my coworker to grab lunch. But if I was being honest with myself, the reason I did it was because I wanted to hang out with my coworker. I couldn’t have cared less about the actual sushi.

Oh yeah, and holy crap, one year I spent $3,500 on clothes? At the time, that was about 5% of my take-home pay, which is the “recommended” amount, but experts be damned. I still had a bad gut feeling about it.

Here’s my unscientific test on whether or not certain spending is bogus: Does this spending make you cringe after the fact? Yes, yes it did.

Everybody also has a different gut reaction to what’s “too much” money for certain things. For example, this woman would never spend $85 on a T-shirt like I would.

I started to realize that I had limits to how much money I spent before I felt bad. $3,500 per year on clothes seemed “too much,” but $2,500 felt reasonable to me.

Seeing my raw spending helped me determine which habits needed to be reined in immediately.

For example, I really didn’t want to be a person who spends $11 on grocery store sushi all the time. So I started bringing my lunch or getting food from cheaper places. How you spend your money says a lot about you, and Overpriced Grocery Store Sushi Girl was not the story I wanted to tell.

And over the past two years, I’m really happy that I’ve significantly reduced my shopping. I wouldn’t have consciously thought to do that if I didn’t track my spending.

Clothing Spending from 2010-2017

Facing my existing spending and not liking what I saw helped me kickstart some lifestyle changes.

4. Creating a Realistic Budget. Key Word = Realistic

After confronting my spending, my next move was to create a plan. And this plan, my friends, is called a budget. The word ‘budget’ has such a bad wrap, but really, to me all it is a high-level plan for how you’re going to spend your money. Some of us, like me, spend months planning vacations. Why don’t we plan out our money, which affects our entire lives? And budgets literally take, like, half an hour to do.

By the time I made enough money to seriously save (about 33k), I was already several years behind, because I took a couple detours in life. So for me, saving as much as I could was paramount. I had to play catch up.

First I started out by hiding money from myself or “paying myself first,” so I could get a system down. My next step was to tweak the system.

To create my monthly budget, I needed to gather the following:

  • My gross and take-home pay
  • An average of the last couple month’s worth of spending, and their corresponding categories
  • A spreadsheet

I drew up a simple plan, entering in the numbers in this order:

  • My gross and take-home pay at the top of the spreadsheet
  • My fixed expenses (rent, debt, cell phone bill, etc.)
  • The average amounts from Mint for each remaining spending category

Then I calculated what was left over. This is what I could currently allocate to savings without breaking much of a sweat.

5. Tweaking the Spending that Doesn’t Make Me Happy

I always had leftover money in my budget…but I couldn’t afford every single thing I usually bought and still meet my savings goals. I wanted to save for a wedding AND retirement AND a possible house down payment.

Some spending would need to be cut.

Along with the knowledge from Step 3, it was time to do some soul searching. It’s hard to be good at money if you don’t know yourself.

While buying everything I wanted was a failing strategy, I could prioritize spending on the things that I truly cared about. After housing and food, my top priorities are travel and shopping, and my spending consistently matches those priorities:

Mint Annual Spending Bar Chart

Then I had to ask myself: are there any categories I could tweak that won’t impact my happiness? These are the spending categories I reduced first, because they were the easiest. If I wanted to set myself up for success, I had to start with some low-hanging fruit.

Low-value categories like entertainment, going out, gym memberships, furniture and decorations, and alcohol, all were decreased by about 10%. Again, I wanted to be realistic with my budget by doing small, achievable tests, and continually tweaking the next month.

If you find that some low-value expenses have creeped up as one of your top spending categories, it’s a sign you might not be spending based on your values.

But on the other hand, if buying a coffee every morning makes you happy, then leave it be in favor of reducing another category.

6. Automate, Automate, Automate

After I had a budget I thought I could stick with, I’d edit my existing automated savings amount to match. I’d also add the new budget line items into Mint so I could easily track my progress.

7. Watching My Money Grow

Finally, I love to watch my money grow. Spending money doesn’t feel great, but savings does. Seeing results, even small ones, encourages me to keep going. The small results are why I floss every night, no fail. I don’t even have to think about it because it’s a habit that’s now built into my nighttime routine. My brain has started to learn, “the more I floss, the happier my gums are.” Like the flossing, saving money is a part of my lifestyle. Just like any habit, the more you do it, the more “invisible” it feels. Just like magic.

Are you a savings pro or a savings newb? What are some tactics you used to save more money? Have you ever had a reality check with your spending? More importantly, do you floss every night, no fail, like me?

Image: Unsplash

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  • Great list here. Automation is super important! I’d reckon that the one key that’s allowing me to retire early in the next couple of years. The trick is to set the 401K to max as soon as you’re eligible and then let it ride for the next 10-20 years. I’d argue to same for an HSA if you can sign up for one.

    • Hey AC, thanks! Yes, automation and consistency was huge for me. I’ve been able to max my 401k within the past couple years, and once I was eligible for an HSA, I maxed that out, too. We are changing health insurance next year due to projected increased costs, but the amount I have in my HSA isn’t chump change.

  • Adventure Rich

    Awesome list… my favorite is automate! The less I have to do with the savings the less of a chance for “user error” (forgetting to save, overspending, etc) 😉

    • I know, right? I’m never really debating purchases and things much anymore. Because savings becomes basically a lifestyle.

  • Handy Millennial

    Great list 🙂 There is also something about the style of your blog that makes reading this very pleasant (visually). I love the section called Finding my “Too Much Money” Thresholds”. One interesting aspect of our new economy is how what’s supposed to be quick easy and cheaper is actually Too Much Money. Here is quick example, I was standing on the street one day when I overheard the following comment: “Omg, I spent $500 on Uber last month!” My reaction was, “That’s odd, isn’t Uber supposed to be cheaper than a car?” It seems that these services have slipped right past our attention and become a staple of our budgets (even if you dont have one, you have one). So that being said track track track! just like you said.

    • Oh, what a nice compliment! I do try to add pics when there are huge walls of text to break it up a bit. Something about how people don’t really read long copy copy anymore?

      I think the too much money threshold is super interesting how it varies by person to person. But I think it’s important to assess, because sometimes the recommended budget guidelines don’t match with your values. For example, the 50/30/20 budget, 50% on needs is way too much. I know I can get that down by making certain choices.

      But yeah, you’re right, the convenient purchases that are supposed to cheaper and save money end up being “necessities” over time. Problem is those necessities do add up!

      Thanks for stopping by and commenting, HM!

  • The tweaking part is never-ending in my world. And it’s also what’s helped us be most successful. Great list!

    • Yeah, the tweaking part was soooo important for me. Especially since I made a point to do it every time I made more money. Without doing that it would have been super easy to succumb to lifestyle inflation.

  • Done by Forty

    I like the rule about finding your ‘too much’ threshold for certain items, and linking it to an annual figure. I’m always shocked to see what we spend at restaurants and takeout each year. But that figure only scares me in the aggregate. Twenty bucks NEVER seems like ‘too much’.

    • Jane W.

      Same here….and it seems like so few of those $20 meals are really worth it.

    • You know, I read somewhere that said the category most people regret spending on is eating out. Just sayin’ 🙂

      Sometimes I like to think about if 80-year-old Luxe would regret certain purchases. If so, then do it. If not, then skip.

      And yeah, with those $20 meals, you really have to watch the frequency. I know, because we struggle with this, too. I also have read that if you save eating out to only momentous, special times, like Valentine’s day, you’re less likely to regret. But if you tend to eat out on random Friday nights, you’re more likely to regret it.

  • Debts to Riches

    Thank you for breaking this down! It seems easy – after you’ve already learned how to do it.

    I’ve developed a cringe alarm system with my spending too, and it’s so useful. It doesn’t matter what someone else spends on a certain category. They have an entirely different life.

    • Cringe Alarm System is now my favorite phrase. It’s funny how some things just make so much more sense after the fact! But yeah, I probably would have just created an unrealistic budget back in the day, if I hadn’t learned about tracking.

  • Jane W.

    The term “low-value expenses” really resonates with me, and bringing my own lunches has been a relatively painless way to save more $$.

    • Yes! Understanding what’s important to you and what’s not is key. If you end up having to cut something you really love, it makes it so much harder. It’s also important to know why you spend on things. For me, bringing lunch has been pretty painless, too. I literally was just grabbing lunch just to eat at my desk, not for social/networking reasons.

      Thank you for stopping by 🙂

  • Love how doable you made it sound. Found myself checking each point off in my head – I’m getting there! And lol at your heart-felt thanks to whomever created the pretty Google sheet. XD

    • Ha, I know–thank you Stranger for creating this awesome spreadsheet!

      I always feel like lots of things seem scary and impossible at first, but if you break them down into smaller pieces it’s a lot easier.

  • Kaitlyn

    Do you find it’s more helpful when looking at your “too much” spending to look at it as an annual cost (like the $3,500 down to $2,500 for clothes) or break it into “I will only spend x amount on clothes per month”?

    • This is a great question! Some categories, like travel and shopping are budgeted on an annual basis. The reasoning is that those expenses just don’t come up consistently every month, so it’s not realistic for me to budget for them monthly. Like, three months will go by without buying anything, and then one day I”ll go on a rampage. But yeah, I’m a very loose budgeter and in this case, I only watch the annual amount.

      • Kaitlyn

        I like that strategy! I started realizing in the past couple of months that when I just give myself a “fun” line in my budget for clothes, eating out, make up, etc, rather than more specific annual guidelines or monthly categories, I would spend the money just because it was there, not necessarily saving for the bigger purchases I love or truly need. I’ll have to try this method to see if looking at an annual amount for the things that truly make me happy curbs that habit!

        • Ahh, yes, that’s definitely a possible downside to budgeting! Sometimes there’s that pressure to just spend everything you’ve allocated in the budget. What I do to combat that is just to save as much as I can without sacrificing my happiness. Then I’m kind of forced to live on a smaller budget. Then spending it all isn’t a huge deal for me since I have the peace of mind that my savings are growing nicely. Definitely try it and see if it helps!

  • Eddie

    You’re right Luxe, being realistic is critical when budgeting. I used to be overly ambitious with how much I wanted to contribute to my savings and in the end I would either be bummed that I over spent or that I limited myself on a given experience. Also, many a time I find myself spending less than budgeted for expenses like groceries or “leisure” that I roll it over to eating out because there is nothing I enjoy more than not cooking. It feels like a reward.

    • Yeah, I wanted to point out being realistic because I’ve seen way too many budgets fail. Actually, I expect them all to fail at first! Like you said, it’s an evolving document, not something to live and die by.

      So how do you budget? Spreadsheet, app?

      • Eddie

        I use a spreadsheet where I allot my expenses into percentiles. I keep it as simple as possible. I also use envelope budgeting solely for my leisure allowance. Once I’ve run out of cash, it’s time to get creative, but it’s rarely the case because that’s when realistic budgeting comes into play.

        • Sounds like you’ve got a system down pat. I love how the realistic budgeting makes it so you don’t run out of cash.

  • Loved this post! I’m in the tweaking stages of saving with my husband now. I know that all of our “extra” money goes to liquor, eating out, and random Walgreens trips (there’s one literally next door to our complex). We put money away in savings, but I think we could have even more if we cut back on those things just a little. I haven’t used Mint, but I think I will try it for the next couple months to get an accurate idea of where our money is going.

    • Thank you! I feel your pain on the Walgreen’s. I used to live near a 24-hour one, and there were one too many 3am trips to buy bags of chocolate–oops. I would definitely recommend using Mint. It’s an easy tool to track spending, and my husband and I have a shared account together for transparency. The graphs and summaries are pretty great!

  • I too, use a combination of Mint and spreadsheets to do all my budget tweaking 🙂
    Overpriced Grocery Store Sushi Girl, meet Buy Anything If It’s On Sale Girl -____-
    I’m terrible at maintaining small changes, so the only way I started saving was by doubling my retirement contributions and setting up automated transfers to a savings account essentially overnight. My take-home salary I think was halved, and I learned how to deal with it.

    • Hahaha, I used to get sucked into sales a lot, too! I like how you tweaked the system based off how you are. There isn’t one system that’s going to work for everybody. Just like I know I’m never going to manually track my spending in an Excel spreadsheet. Not going to happen. Because of automated savings, I feel like my paychecks are soooo tiny, and yeah, I’ve definitely learned to adjust my spending habits to match.

  • Stephanie

    My biggest financial issue was ignorance. I never focused what I was swiping my debit card on, always looking instead at my available balance. I started using Mint, but realized that it was easy for me to use it as passively as I was using my checking account. I then tried YNAB (You Need A Budget) and haven’t looked back since. It has made the world of difference and made me understand how to actively budget rather than passively justify after the money was already spent. I’ve been able to increase my savings and be more proactive in deciding where my money goes by using YNAB. I started using credit cards a few months after I started budgetig and know that being aware of my spending helped ensure that I’ve never gone into consumer debt. Find what system works best for you!

    Yes to opening a separate savings account!! My boyfriend used to have a single checking account and it blew my mind! I have my checking and a savings account at a nationwide bank — with a small amount in the saving account for some easy access funds. The bulk of my cash savings is in a Barclays account with a 1.3% APY. The interest earned over the year adds up. Definitely look into online bank options for the best rates!

    • Hey Stephanie,

      Thanks so much for sharing your experience! I think “awareness” is something LOTS of people struggle with. I mean, our society kind of revolves around that. And I agree about Mint–it’s definitely passive, and not the right tool for everybody. It works for me because I put away so much of my money in savings, and have learned to live on the rest. I’m so glad that YNAB works for you! I remember checking it out a while back, and it was definitely intense, but lots of people really love it, especially those who are struggle with debt. There’s something about having to actively manage your transactions that just sort of clicks with people. And so awesome that you haven’t struggled with consumer debt–consider yourself a lucky duck!

      And so much yes to online bank accounts! They have the best rates, at least from what I’ve seen, and the fact that you can’t physically get money from them is even better.

      Thanks for stopping by!

  • I feel like learning to save is a rite of passage. Even though my mom guilt tripped me to not spend my money (aka save) by asking questions like “do you reaaally want that?”, I feel I still hit all the same pitfalls.

    Having a single checking account was the worst because it was always about maintaining the balance at some dollar amount instead of actually increasing it. Plus there’s no easily measurable growth when your account balance is constantly fluctuating from spending! I used to also loosely track everything, but that never worked because I would always find my account balance to be lower than I expected. It’s funny how difficult it can be to actually know where all your money is going!

    I love cutting the low value things, but I wonder if there are people who don’t perceive any of their spending to be low value? What can you do in that case?!

    • “It’s funny how difficult it can be to actually know where all your money is going!”

      I’m sure my husband won’t appreciate it, but I went full-on detective mode on our spending last night. I was like, “What is this $14.14 itunes charge?” and yeah, there were a few expenses we had to mystery solve, haha.

      You bring up some good points about why a single checking account is the worst. You never experience any small wins because your account is constantly getting used.

      Hmm, if people perceive all their spending to be low value, then the next step is to look into seeing if any existing expenses can be reduced, or trying to make more money.

  • I’m a big fan of step #6. I follow Paula Pant Afford Anything’s anti-budget. Basically, I automate my savings and then not worry about spending since my wife and I are naturally frugal. These sometimes needs some updates and we really need to do a budget annually or more often. I also love watching my money grow…much more exciting than buying a new gadget! It’s a lot more fun when you’ve been at it for awhile and the compounding magic starts to work. And I need start flossing daily…my dental hygienist keeps getting on me about that. (I usually do it everyday about a week b4 my appointment cuz I don’t want to get in trouble! =)

    • I’ve realized I’ve been an accidental Anti-Budgeter for quite some time now. Once I had my spending habits reined in, I decided how much I wanted to save first, and went backwards from there. Works great for me, but definitely will not work for everyone! My husband and I do weekly checks to see if anything is bogus or cringeworthy. Then we make a point to try not to do it again in the future.

      Someone else made a good point about keeping a separate savings account. If you lump your savings with your checking, you don’t get to watch it grow. Seriously, it feels soooo good to watch that balance go up and up!

      I’ve always tried to pinpoint why I floss every night. I think for me, it’s about avoiding a super negative consequence. If I don’t do it, my gums start to bleed, and that’s the worst!

  • Automation is key in terms of contributing to your retirement accounts. Since 401Ks are pre-taxed, your contributions are automatic and don’t have worry about it. I do the same with my IRA, I set it to contribute on a monthly basis and its automatically deducted from my bank account. Automation really helps build up your long term accounts,

    • Yes, agree! My paycheck is so tiny in comparison to how much I actually make. It looks like I make in the 50k range based off my paycheck alone. It’s a super effective Jedi min trick!

  • prosperlyway

    I’m a little late to the party, but I just saw this post!

    I was one of the lucky kids who learned how to save really young. I’m really thankful for it now, but it’s so painful to see people make super simple mistakes!

    Paying yourself first is just so crucial. Doing that alone puts you in a better spot than most people out there.

    I use a combo of Personal Capital/Mint/Old Fashioned Excel math. I don’t really like the budget tools online because they aren’t very flexible, so I use my own spreadsheet.

    • Oh, hey!

      Yeah, I remember my mind being blown when I read about paying myself first. It was such a novel, exciting concept. I thought the money leftover in my checking account was savings. Oh, newbie Luxe.

      I feel like my account setup is more simplified than other (no house, cars, etc.) so the online tools do the job just fine, but there are pros and cons to all.

      Hope to see you around here more often!

      • prosperlyway

        You certainly will!