A Beginner's Guide on How to Start Saving Money

"How do I start saving my money?” is a question many people ask themselves at some point in their life. Ideally it is wise to get into a money saving mindset at a young age. However, saving money can begin at any age as long the individual has money to save. If this is your first attempt at saving money on your own, then here are a few tips to get you started.

Young children learn how to save money for specific things they want like baseball mitt, new bicycle or a video game. As people get older, typically their reasons for saving become more complex. Teens and young adults may want to begin saving money to help pay for higher education, a car or maybe the security deposit for an apartment. As a person gets a little older their needs change to saving to buy a home, planning for the children's education or saving for retirement.

Decide what you want to start saving money for (your goal) and write it or them down on a sheet or paper. Figure out when you want to meet your goal. Now it's time for you to figure out what you want your savings to do?

There are many reasons why a person may want to save money and many different methods to start saving money. There are two things saved money can do for you: it can either sit and accumulate when you add more money to it or it can make money for you by accruing interest.

If want to start saving money to purchase an item or for a vacation, you probably have a short timeframe (less than two years) with which to save money. Putting money away periodically and letting it sit until you have enough to make your purchase is probably a good option. If your goal is to start saving money for a home or even retirement, you probably have given yourself a few years to meet this goal. Saving money so it can earn additional money for you probably is the best option.

You need money available to start saving with. You will not know how much money you have available to use for saving until your figure out your monthly budget. Your monthly budget includes all incoming money and all expenses for the month. Your expenses will be deducted from your incoming money on the budget. Whatever money is left after all expenses are taken out, is what you have available to start saving with. If you do not know how to create a budget many resources are available such as Microsoft Excel monthly budget templates, QuickBooks software, and online resources such as Mint.com.

In the event that you have no money left over, then you will need to find ways to reduce your expenses. If you spend money on ordering out or entertainment you may want to cut the amount you spend on these in half or eliminate them all together. For grocery and personal items start buying store brands instead of name brand merchandise to cut down on these expenses. You may even need to take on a second job and start saving the money you make from that job.

Once you have money freed up each month, determine what financial product will best serve your savings needs. If you simply want to set aside money and are not concerned with earning interest then a checking or savings account may be best. You can continue to add money to these accounts on a monthly basis and still have access to the money in case you need it before your goal is met.

If want to set aside a block of money that is $500 or more, that you can not touch at will and would like to see it earn a little extra money, then investing in a CD may work best for you. When you open a CD account the money you invest is held until the maturity date of the investment is reached. Beware, that if you decide to withdraw your money before the maturity date, you may be penalized and charged an early maturity fee, causing you lose money.

If you have larger chunks of money, $5,000 or more, available to start saving with then investing in stock, mutual funds or bonds may be options to consider. It is recommended to seek the assistance of a financial advisor before investing in these as there is high risk involved. There is the potential to lose the money you invested. However, over the long term your return can be high. According to the Securities Exchange Commission the stock market has provided 10 percent annual returns on investments compared to 1 to 5 percent for retail banking products like savings accounts and CDs.

These four steps are the simplest way to start saving your money. If you have thousands that you wish to save or if you are interested in investing in the stock market, then seeking the expertise of an investment advisor or financial planner is highly recommended. If you are planning to save money for a rainy day, taxes or a special occasion then placing your money in a retail bank savings account or CD may be better options. Stop wondering, "How do I start saving my money?" and get to it.

Securities and Exchange Commission. (2004, October 08). Get the Facts: The SEC's Roadmap to Saving and Investing. Retrieved January 21, 2010, from Securities and Exchange Commission: http://www.sec.gov/investor/pubs/roadmap.htm

Securities and Exchange Commssion. (2004, October 08). Determine Your Risk Tolerance. Retrieved January 21, 2010, from SEC: http://www.sec.gov/investor/pubs/roadmap/risk.htm

University of Illinois Extension. (n.d.). More for your Money. Retrieved January 21, 2010, from University of Illinois Extension: http://web.extension.uiuc.edu/money/saving_now.cfm