The question of how to save 10,000 in a year doesn’t have a one-size-fits-all answer. Much will depend on a person’s individual financial situation. Here are a few tips to help make this bar achievable at almost any income level.
It makes little difference whether the purpose of the savings is to make a down payment on a house, build retirement capital or pay for a holiday. Most of the mentioned ways to save the right amount of money are suitable for any task.
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Save First Spend Second
Savings should be included in the monthly budget as a separate line item. A person aiming at building capital should treat this goal as a mortgage repayment and other fixed expenses that cannot be waived.
That is, after being paid a salary, he should first of all put aside a fixed amount in a separate account according to his own savings schedule. Once this is done, only then can one move on to optional expenditures. A strategy of people spending first and discovering at the end of the month that they have no spare money left to invest is inefficient.
To determine how much you can save without compromising your current needs, you should follow the steps below. They will also be useful for people who are sure that their income is not enough for savings.
Update Your Monthly Budget
Careful budgeting is a prerequisite for successful saving. Unless you control your income and expenditures, it is impossible to ensure your financial security.
To make a budget, you need to follow these steps:
- Analyze income (wages, interest on investments, etc.).
- Track your living expenses for at least a month.
- Classify spending into fixed and variable, mandatory and recreational. Set fixed amounts for each category.
- Check at the end of the next month to see if the plan has been adhered to.
Some people find it easier to budget on a weekly rather than monthly basis. This allows you to see results more quickly. Others prefer to use multiple accounts strategy. Once they receive the income, they immediately distribute the money in set proportions between accounts, each for a specific type of spending.
Many budgeting consultants advise switching to cash and using multiple cash envelopes rather than bank accounts. This will demonstrate more clearly to the person how much money he or she has and will help to treat expenses more thoughtfully. Psychology works in such a way that it is much easier to refrain from pointless purchases when it is necessary to take notes out of the wallet and hand them over.
Financial advisors call the following proportions the ideal ratio of expenses in a budget:
- 50% – mandatory monthly bills (food, rent, etc.);
- 30% – expenses for entertainment, fashionable clothes, holidays, etc.;
- 20% – long-term savings.
Yet for many people who are thinking about building capital for the first time, it seems impossible to cut expenses by 20%. Even deciding to set aside 1% would be a good start. As the habit of saving develops, this proportion can be built up.
Break Down the Amount You Need To Save
The task of putting away $10k in a year can seem overwhelming. But by splitting it up and setting a daily or weekly savings goal, the perception changes. Splitting a meaningful goal into several smaller ones makes it psychologically simpler and makes it easier to track progress.
To reach the $10k goal for the year, you need to save:
- $833.33 per month;
- $192.31 per week;
- $27.4 per day.
If a person is wondering how to save 10000 in 100 days, however, they will have to set more ambitious goals – $100 a day or $700 a week.
If the income to expense ratio in your budget doesn’t allow you to set aside such amounts, the following steps can help you find hidden savings reserves.
Adjust Your Tax Withholdings
If a person reduces their tax payments, the entire amount freed up can be used for savings. Many factors influence the rate and amount of tax:
- filing status (single person, married couple, etc.);
- total income including short-term capital gains;
- rights to various deductions and exemptions (e.g., for dependents, medical expenses, replenishment of retirement accounts, etc.).
A tax consultant can help you find a way to optimize your contributions to the federal and local budgets.
Don’t Pay Interest on Your Credit Cards
This is another cost item that is often perceived as a necessary evil, but can be optimized. For the average American, this will “win” about $100 a month. Therefore, the first recommendation from financial advisors is to close your credit card debts.
Being high rate debt free can be considered a kind of “income stream”. By getting rid of such loans, a person saves significantly on interest payments. This decision may be even more profitable than investing money.
The figure below presents the average annual returns of the major US indices (based on 5-year performance) and the average credit card rate as of July 2023.
An alternative to expensive credit cards can be favorable offers from online banks that entitle a person to a grace period. This period allows a person to use the money for free. The main thing is to close the debt on time.
One more expense item is the annual credit card maintenance fee. One should make sure that the bonuses it brings cover its cost. If this is not the case, you should study the banks’ offers and find options offering free servicing.
Track Your Spending
Tracking expenses is a prerequisite for saving. It is impossible to find the resources to build capital unless you do so.
The easiest way to do this is to use banking apps that automatically categorize your expenses. But calculating your spending manually is often much more useful in developing a conscious approach to money.
Cut Back on Spending
People who start budgeting are often amazed to find out how much they spend on non-essentials and questionable entertainment. The main categories of expenditure that can be reduced:
- coffee to go;
- streaming service subscriptions;
- beauty salon visits;
- shopping as entertainment.
Potentially, even a partial reduction in such discretionary spending would already free up $192.31 per week, which would result in $10k per year.
Reduce Your Biggest Expenses
For most, the biggest expenses are housing and transport costs. These can be reduced by the following solutions:
- finding a neighbor to share a flat with for single people;
- moving to the suburbs, to smaller housing;
- reducing the number of cars in the household.
This is a radical approach, but the amount saved will be significant. It can make the maximum contribution to the capital creation.
Another radical measure is to organize a month/year challenge not to buy clothes or cosmetics. It is suitable for people who spend a lot of money on a certain category of goods.
Check Your Grocery Bill
The average person can save up to $100 a month by cutting expenses on food without even reducing the quality of their consumption. All you need to do is to rethink your attitude to everyday spending. It will help:
- visiting shops with a list of essentials;
- avoiding impulse purchases, especially junk food;
- meal planning so that food already purchased does not have time to spoil.
In addition to food, you can also save money on everyday consumer goods. For example, refuse to buy household chemicals and paper products from well-known brands. Switching to no less qualitative, but unadvertised variants will make a small contribution to savings. But when combined with other “small steps” it will allow you to achieve your goal in the end.
Spend Less Money on Eating Out
Eating out is a significant budget item for most American families. On average, it costs $3,000 a year. By reducing this expense by just one-third, you can save 10% of that amount.
Certainly, some people spend money on cafes and restaurants quite infrequently. And if eating out is habitual, then refusing to eat out will lead to higher expenses on food for cooking. But it is still worth considering this item as one of the many ways to optimize your budget.
Lower Other Recurring Bills
Anyone has many running costs. Among them, there are likely to be some that can be reduced by 10% or more. These can be:
- Utility bills. For example, water-saving nozzles can help reduce water consumption. And timely filter change in the air conditioner will help to save electricity.
- Expenses for subscription to streaming services and cable TV.
- Monthly mobile phone and internet payments.
- Payments for car and home insurance, etc.
Often people are in the habit of paying for unlimited internet and many different subscriptions. In reality, however, they do not use all the possibilities provided by the purchased services. Therefore, it is useful to do some analysis of how useful the tariff you are using really is. And if it is impossible to give it up, check whether competitors have a cheaper analogue.
The same goes for insurance. You can save a few hundred dollars a year by spending just a couple of hours searching for a better deal.
Types of Accounts to Save $10K in a Year
Cutting expenses is not the only way to save. Using banking products and investing can help you reach your goal of saving $10,000 a year. Interest income will make the process of creating capital more efficient and faster.
Depending on your financial situation and time horizon, you can use any of the 4 types of savings accounts:
- High Yield Savings Accounts. The interest rate on them is much higher than on traditional accounts. Meanwhile, it is still possible to withdraw money without penalties and commissions.
- Money market accounts. Interest rate comparable to high-yield savings accounts. Besides, you can link a debit card to them and get additional bonuses for it.
- Deposit certificates. This option of investing money is more profitable than the previous ones, but there are restrictions on early withdrawal.
- Investment Accounts.This could be a standard taxable brokerage account or benefit plans (retirement plans, tuition plans, etc.).
The first 3 options are considered risk-free investment methods if a bank participating in the insurance programme is selected (insurance covers the deposit amount up to $250 thousand per person). When investing, the level of risk is determined by the assets selected for investment.
Financial advisors recommend that the first money saved be placed in bank accounts rather than invested in high-risk investment instruments. This is the basis of a person’s emergency fund.
The next step is to build retirement savings. The best option is to join your employer’s corporate 401(k) plan. This will allow you to receive additional income in the form of contributions from your employer and will qualify you for tax benefits.
Find Free Ways to Entertain Yourself
Cutting back on entertainment is another way to save some money to reach your $10k a year goal. Alternatives to expensive activities include hiking, free festivals and exhibitions.
What can you do with your income to save 10000 in 52 weeks
You can increase the amount of money you save both by cutting expenses and by finding additional sources of income.
Barter for Goods and Services
Bartering allows you to avoid spending money on basic things. For example, neighbors may provide mutual services to each other, such as mowing the lawn, babysitting, etc.
You can find like-minded people to barter with in local social networking groups in your town or neighborhood. Similarly, you can exchange various items that are no longer needed by one person but are needed by another family.
Sell Items Around the House
Unused items, children’s toys or sports equipment can not only be exchanged, but also sold at a profit. Not only will it help you earn money and get you closer to your financial goal, but it will also free up space in your home.
Pick Up A Side Hustle
If your current job doesn’t allow you to put aside $10,000 a year, additional income may be the solution. It could be a side hustle on the weekend or in the evenings. Some examples are a live-in nanny or dog walking services.
A good option is a job that can be done in any free minute without being tied to a strict schedule. Among the most affordable options are writing articles, processing applications for an online shop, etc. Even simple activities such as watching videos and taking surveys can earn money.
If it is not a question of a person needing to save the necessary amount of money one time, but of wanting to constantly save money, for example, for a retirement account, it is advisable to create a permanent source of extra income. It can be your own website, blog or shop.
Try to make changes in your work
You can also get more money at your regular job. The easiest way to increase your income is to ask for a raise. Many companies reward their employees if they are willing to take on additional workloads, work overtime, learn new skills and combine several jobs.
For those who are not ready to increase the number of working hours, it is useful to study the current situation on the labor market. Many professionals may be surprised to learn that competitors are willing to pay more for their services than their current employer.
Begin Investing
Investing is often referred to as the best way to achieve financial independence. There are 3 key points to keep in mind to get the desired results:
- Long-term strategy. Investing involves risk. In short time intervals there is a probability to face a drawdown of the portfolio value. Speaking of decades, the broad market consistently shows growth.
- Diversification, i.e. allocation of capital to different asset classes. A passive “buy and hold” strategy built on exchange-traded or mutual funds is best for a beginner.
- Compound interest. You need to reinvest income to maximize the benefits of your investment.
The advisability of investing depends on the time horizon. Financial advisors do not recommend investing in stocks if you plan to use the money in the next 3-5 years. Even bonds can fall in value. Therefore, it is reasonable to choose issues with a maturity date close to the planned date of funds repayment.
Before buying securities and alternative assets, you should understand the advantages and disadvantages of each stock market instrument, determine your investment horizon and risk tolerance.
The investment account should only be replenished with free money. It is also important to have a rainy day fund, which is kept in high-yield savings accounts or in assets with minimal risk. It will be used in case of illness and other unforeseen circumstances.
It is also possible to earn compound interest with deposit certificates and other bank programmes. But the rate of return in stocks is usually much higher.
Through reinvestment, a person will earn interest on the “interest”, i.e. the money they have previously earned on investments. This is what gives retirement savings exponential growth over a horizon of decades. Over the first few years of saving, the impact of compound interest is almost imperceptible.
The chart below illustrates how capital grows over 35 years if you save $834 per month. The average return of 8% is taken for example, and is considered to be an achievable result when investing in broad market funds.
Make Your Savings Automatic
The financial industry offers numerous programmes and apps to make saving a simpler process and save time.
People with poor financial discipline can take advantage of automatic top-up tools for their savings account:
- Set up to deduct a certain percentage of each income (salary, freelance income, etc.) to a separate account. This will ensure that no pay period is missed.
- Round each purchase to a whole dollar. For example, if you purchase an item for $1.65, the checking account will be debited not $1.65, but $2. Of that, $0.35 will be deposited into a savings or investment account.
And for beginners who need help in creating a diversified portfolio, robo advisors have been created. They will help you choose the optimal set of assets based on the financial situation and the investor’s goals. Dividend reinvestment can also be automated.
Track Your Progress
Things don’t always go according to plan, unexpected expenses may arise, or the savings schedule may not be well thought out. That’s why it’s important to track your progress, so you can spot mistakes and find a way to fill the gaps in your plan.
The best option is to calculate how much you have saved each week. At a minimum, you can do this once a month.
Don’t Give Up
The biggest mistake a person can make at the beginning of their capital accumulation journey is to give up and give up on the idea. Even if you don’t save enough in some days and weeks, there will be plenty of opportunities to make up for it over the year and, as a result, reach the $10,000 goal.
But even if this figure is unconquered, any result can already be considered a victory. The main thing at the first stages is to change your habits, develop the skill of saving, and get basic knowledge on how to make money work for you.
The Bottom Line
Giving up your spending habits and saving $10,000 a year requires determination and consistency. But in fact, achieving financial success is not as difficult as it seems at first glance. A person who has never thought about budget optimization before will be able to make their consumption more environmentally friendly and will find many ways to reduce expenses.
For people with low incomes who have previously avoided unnecessary spending, this goal may be more difficult. Solutions such as bartering and finding new sources of income can help.
With the right mental attitude, saving will turn from a difficult task into an exciting financial journey towards your goal. You can make your way easier by using various savings tasks, such as spending a week without shopping, etc.
FAQ
Is it possible to save 10K in a year?
Of course, much depends on the amount of income and mandatory expenses. But it is believed that with the right approach to spending, you can save up to 20% of your income without compromising your daily life. This means that a person who earns $50,000 or more can safely challenge himself.
How to save $10,000 quickly?
In order to quickly set aside $10,000, you need to make a radical overhaul of your biggest spending habits. Among the obvious solutions are moving to cheaper housing, refusing to spend on entertainment, buying clothes, etc.
How to save 10000 in 6 months?
To achieve this result, you need to save $384.6 a week, or almost $55 a day. This can be quite a challenge, requiring a drastic overhaul of spending or finding a new source of income.
How to save 10000 in 3 months?
To do so, you would have to save $3333 a month or $111.11 a day. For a person with an income close to the average, such a goal can be a significant challenge. For example, such radical solutions as avoiding unnecessary spending altogether can help to achieve it.
