Your ultimate guide to saving more money

You’ve come to the right place. At Empower we believe it’s not about how much you make, it’s about how much you can save. And before you decide how much you can afford to save, we have to face your numbers and diagnose your financial situation. Just picking a random number to save is a mistake most people make and can lead to discouragement, frustration, or worse, further debt. 

Side Note: There are many money manuals out there with different rules. We believe in meeting you where you are and diagnosing your specific situation. This is why we take the fixed vs. variable expense approach. The same steps apply whether you’re living paycheck-to-paycheck or have excess money to save.

Here’s a breakdown of what we’ll cover:

1. Calculate your income. (This is the fun bit.)

Determine your monthly take-home pay. How much money are you earning after taxes? Be sure to include all forms of monthly steady income (e.g. after-tax salary, rental income, side hustles).

Side Note: Your non-recurring/non-guaranteed income should not be factored in, like company bonuses, tax refunds, or vesting stocks. You shouldn’t plan your everyday life around uncertain or one-off income streams.

2. Understand your commitments. (Time to cut the cord.)

2.1 Itemize your fixed and recurring monthly expenses. These are expenses you’ve committed to spending on a regular monthly basis. While this exercise can be daunting and time-consuming, it’s an essential step to understanding your finances.

Examples of common fixed and recurring monthly bills include rent/mortgage, insurance, utilities, and minimum debt payments. We’ve classified these into three buckets based on how easy they are to cut:

• Difficult but doable — Can you downgrade?
  Some fixed expenses are difficult to eliminate but there are strategies to help you manage these expenses better. For example, if you and your partner live alone in a two-bedroom apartment, you could consider getting a housemate to share the rental cost or downsize to a one-bedroom apartment. If you’re driving a Tesla, you could downgrade to a Toyota. This bucket is generally harder to cut back but it’s possible.

• Negotiable — How low can you go?
  Other fixed bills include phone, insurance, cable and internet which can often be negotiated. It’s helpful to review your bills at least every six months to see whether there’s a new, cheaper offer in the market or even just checking if you’re over insured (e.g. car, home, pet, health insurance). 

• Don’t need, won’t miss — Would you notice if these were gone?
  Review your subscription list. Americans spend on average about $240 per month on subscriptions.^ Insane, right? Are you still using that Hulu, Netflix, or Disney+ subscription? Why are you even paying for three streaming services?! What about gym memberships, dating apps, food delivery, or beauty samples? An easy way to save more money is by cutting subscriptions you no longer use or need (or share passwords with friends and split the cost).

2.2 Don’t forget fixed and recurring annual bills i.e. what you know you’ll be spending on throughout the year. These expenses are usually paid on a less frequent or irregular basis, like an annual Amazon Prime membership, semi-annual car insurance or car registration, holiday/birthday/anniversary gifts, and other things that pop up during the year. 

Pro Tip: It’s helpful to have a dedicated savings account to support these expenses. If you don’t want to open another savings account, we recommend you fund these out of your Empower AutoSave Account (more on this in 3b). 

The less money you’ve committed to recurring bills, the more you have to save. Every dollar counts! 

Empower is a financial technology company, not a bank. Banking services provided by nbkc bank, Member FDIC.

3. Lifestyle vs. savings. (Don’t eat your savings.)

Now that you know how much money is coming in and what expenses you’ve committed to paying, anything left over is money you can distribute into your lifestyle and savings goals.

3.1 Calculate your variable expenses (AKA lifestyle costs) i.e. costs you can easily control on a monthly basis.

Variable expenses include eating out, groceries, shopping — anything that impacts your lifestyle. For example, groceries are a necessary expense but do you need to buy top-shelf brands when you can always purchase private-label (non-branded) products? Do you have to shop at Whole Foods when you can shop at Wal-Mart? Transportation is important to get you from point A to B but can you take the bus or walk instead of riding Uber X? How about using Uber Pool instead of UberX? 

The less you spend on lifestyle expenses, the more $ will go to your savings and other life goals. Living the high life is great now until you realize you have no emergency savings and can’t take care of your future self. Cut back now to have that financial safety net later. 

Once you’ve calculated how much you must spend on your lifestyle, the key is to stick to it. Some ideas are to use cash; a dedicated, reloadable debit card; a dedicated lifestyle checking account; or Empower’s budgeting and spend trackers.

Pro Tip: Instead of calculating the money going out by hand (from section 2.1, 2.2, and 3.1) why not use Empower? We do the heavy lifting for you and will automatically categorize your income and expenses. We scan your accounts to recognize each transaction and will organize this information in a monthly report that’s easy to digest. Click here to find out how you can access your monthly report.

3.2 Think about what you’re saving for. This depends on your priorities.

Savings are your building blocks to financial freedom. You should generally aim to save 20% of your after-tax income. If you haven’t been saving, it’s never too late to start. It’s fine to start small and eventually build up your savings fund to hit your goals: 

• Step 1: Set aside at least $1,000 as a minimum safety net

• Step 2: Pay off high-interest debt 

• Step 3: Save 3-6 months worth of bills to enlarge your safety net 

• Step 4: Decide on longer-term saving goals

Saving 3-6 months worth of fixed, variable, and other bills (AKA an “emergency fund”) is the first building block on the road to financial freedom. Your 3-6 month emergency fund will cover you in case something really significant happens like job loss or a medical issue (because life happens!). These difficult life events can cause you to quickly go into significant debt that can take many years-to-decades to financially recover from. This is why it’s so important to your financial health to carve out this emergency fund, and then you can start putting money away towards your next big goal (Think: post-pandemic vacation, a car, or a college fund for your kids).

Pro Tip: Manually setting aside savings is difficult. The best way to save is by automating it. You can do this through Empower AutoSave (here’s how). Just tell us how much money you’d like to save each week and we’ll set that money aside if we detect you’ve got extra cash on hand. If you’re not able to hit your savings target in one week due to whatever reason, we’ll try again the following week. There are no transfer fees whatsoever and you can withdraw your money anytime. Let Empower do the hard work of saving for you! 

Empower is a financial technology company, not a bank. Banking services provided by nbkc bank, Member FDIC.

^ Source of average monthly subscription expenses in the US: America’s Relationship with Subscription Services Research Report by West Monroe Partners.