Why Is Saving Money Important?

Reasons to Save Money

Here are a few things saving money can help you do.

Handle Unexpected Expenses

An emergency fund gives you the resources to handle financial crises large and small, from a car breakdown to losing your job. Stow away three to six months' worth of essential expenses, and you'll be able to tap your savings to cover emergencies.

Learn more: Steps to Build an Emergency Fund

Achieve Your Financial Goals

Saving money helps you reach short-term financial goals, such as buying a home or new car or taking a big vacation. Saving also fuels long-term financial aspirations like paying for your child's college education or retiring to travel the world. Regularly putting aside savings can help make these dreams a reality.

Avoid High-Interest Debt

Without savings, you may fall into the habit of using credit cards to pay for major purchases or unexpected expenses. If you can't pay the full credit card balance by the due date, however, any remaining balance begins to accrue interest—and a relatively small balance can quickly become a big problem.

Reduce Stress

Concerns about paying your bills can keep you up at night, put a strain on your relationships and keep you from doing your best at work. Saving money gives you a financial cushion to rely on. When you aren't anxious about making ends meet, you'll get more out of life.

Take Advantage of Opportunities

Your neighbor is selling the '66 Ford Mustang of your dreams for an incredible price. Your son is eager to go on his soccer team's summer trip to Europe. When you have savings set aside, you can jump on opportunities like these instead of passing them up for lack of money or relying on loans or credit cards to make them happen.

Enjoy More Freedom

Burned out at work and too busy to job hunt? If you have enough savings, you may be able to quit and support yourself while seeking a better job. Worried about an aging parent who lives across the country? Use your savings to move Mom closer and spend more time caring for her. A solid savings account offers the financial freedom to do what matters most to you.

How to Save Money

Ready to commit to saving money? Here's how to make it happen.

1. Make a Budget

Create a budget listing your monthly income and expenses, breaking expenses into essentials (such as rent) and discretionary spending (such as eating out). There are several budgeting methods to choose from. The 50/30/20 budget is a popular option that devotes 50% of your income to essentials, 30% to nonessentials and 20% to savings and paying off debt—with the freedom to adjust as needed.

2. Look for Ways to Save

If there's nothing left to save after your bills are paid, you'll need to cut back on expenses. Start with discretionary spending. See how much you can save by eating at home, canceling unused subscriptions, seeking discounts and reducing utility usage. Squeeze out more savings by taking in a roommate to help with rent, moving to a cheaper apartment or starting a side gig for extra money.

3. Set Savings Goals

Based on your budget, goals and time frame, decide how much to save each month. For instance, if you want to build a $2,500 emergency fund in one year, you'll need to save about $208 per month. If you want to save for several goals at once—an emergency fund, a home down payment and retirement, for instance—you'll need to prioritize.

4. Maximize Savings Growth

Optimize long-term savings using tax-deferred accounts such as an employer-sponsored 401(k) retirement plan or health savings account (HSA).

Stashing your short-term savings in a money market account, high-yield savings account (HYSA) or certificate of deposit (CD) can help it grow faster than a traditional savings account.

In September 2024, traditional savings accounts earned an average 0.46% annual percentage yield (APY). By comparison, money market accounts averaged 0.64% APY, 12-month CDs averaged 1.88% APY and some HYSAs had APYs of 5% or more. A savings calculator can help you compare the rates of return different savings accounts offer.

5. Put Your Savings Plan on Autopilot

Pay yourself first by automatically transferring money into your savings account each payday. You're less likely to spend money that never hits your checking account. You can usually set up automated transfers through your employer or using your bank's website or app. Some employers let you schedule transfers into several different accounts to conveniently save for multiple goals.

Learn more: How to Split Your Direct Deposit Into Multiple Bank Accounts

6. Tackle High-Interest Debt

With credit card annual percentage rates (APRs) averaging 22.76% in May 2024, according to the Federal Reserve, carrying a balance could cost hundreds of dollars per month in interest. Pay off your credit cards so you can put that money toward savings instead.

You can use the debt avalanche or debt snowball methods to gradually pay down debt, or potentially pay it off faster using a debt consolidation loan. Personal loan APRs average 11.92% as of May 2024—less than half the average credit card APR—so a debt consolidation loan could save you substantial interest.

Another option is a balance transfer credit card with an introductory 0% APR. Transfer your existing balance to the new card, pay it off before the promotional period ends and you won't incur any new interest.

Learn more: What Is a Personal Loan?

7. Save Your Windfalls

Use windfalls such as a work bonus, small inheritance, cash gift or prize, or tax refund to build your savings. When you get a raise, put part (or all) of it toward your savings goals and stick to your existing budget.

8. Track Your Progress

Track your spending and compare it to your budget to confirm you're staying on course. If your budget is so tight it's tough to stick with, build in a little wiggle room. If you find saving is easy, try saving even more to reach your goals faster.

Frequently Asked Questions

The Bottom Line

Saving money requires some discipline. But just as exercising helps build a healthier body, following a savings plan can improve your financial health. Experian offers plenty of tools you can use to uncover savings on everyday expenses like car insurance and cable, phone and internet bills.