What’s on the horizon for your life in the next year? Maybe something fun like travel, a motorcycle to fulfill that midlife crisis, or a new furry friend? Or, perhaps you’re planning something practical – like home repairs or LASIK surgery to say goodbye to glasses.
Maybe you’re playing the long game; your priorities may be something like bulking out an emergency fund or stashing money away for your kid’s braces or college education.
Whatever life events or goals are coming up for you, having some savings set aside is always helpful to be able to handle unexpected costs that tend to pop up at the least convenient times. Then, the next question is: how much should you save? That’s going to depend on your unique needs, of course! But in general, setting a goal to save $5,000 in a year is substantial, yet attainable for many with the right mindset and a bit of hustle.
We’ve put together a guide on how to take action and work toward meeting a $5,000 savings goal. Keep an open mind, then choose the tips that are most applicable for your needs and lifestyle.
$5,000 Savings Challenge
So, you’re going to challenge yourself to save $5,000 in a year. Awesome! To help get you started, here are four steps for setting up your savings challenge.
Step 1
The first thing you’ll want to do is make a dedicated spot to keep the money you save up. We’re going to plug Milli’s Jars as a fantastic way to save for this short-term goal. You can name the Jar whatever you’re saving for, set a goal amount, end date, and even upload an inspo photo. You can also set up automations if that’s helpful to you. Keeping the money in a dedicated spot can keep you motivated to continue saving and working toward your goal! If you’re saving the money for different expenses, you can make up to five Jars.
Step 2
After you have your Jar or Jars created, it’s time to start breaking down how you’ll reach that goal. $5,000 in a year means saving $416 per month. Now, you’ll create a budget. If you don’t yet have a budget, take a look at our budgeting for beginners blog post – we help break down budgets into four categories so it’s easy to see how much you can spend and save in a year.
Step 3
To reach your goal, you’ll need to check in regularly and track your progress. Your Milli Jar will showcase a progress bar, but you’ll also want to be proactive. Set calendar reminders to check in. It could be monthly, or if you get paid twice a month, you may want those reminders on payday to help remind you to save and keep your spending on track. At your check-in, review your income, recent spending, and savings.
If your check-in is monthly, make sure you can track back how you’ve set aside that $416. If your check-in is twice monthly, you’re accountable for $208 each time.
This way, you don’t run the risk of falling behind on your goal because you forget. And if you see you’re off course, you’ve got time to make changes to get back on track!
Step 4
This may be the hardest one of all: Stay motivated, disciplined, and encouraged!
We know you can do it! If it’s helpful to you, build in some kind of motivational tool. Maybe you like to journal or have a vision board. Keeping your eye on the prize can help you stay dedicated to the hustle.
It’s worth mentioning that even if you can’t quite meet $5,000 (because spoiler; things come up in life) you’ll build strong habits and hopefully have at least a bit more in savings for having the courage to challenge yourself.
Step 5
Time to start making changes. You are done with prep work and ready to begin your challenge. To reach any savings goal, you have two options: cut back on your spending and/or bring in more money. We’ll dig into both options here.
Ways to Cut Back on Spending
After you’ve created your budget, you’ll see if you have $5,000 a year leftover after your bills. If not, you may be tempted to skip to the next section about earning extra money – you can’t budget your way out of not having enough money coming in.
But hang on! Chances are, you can make at least some progress toward your $5,000 goal by spending less. You’ll have to be intentional about how much you are spending and on what types of purchases. But, when you have a more important goal in your mind, that can make it easier to skip purchases that matter to you less than your goal. It’s all about using your money in a way that fits your priorities!
Here are some specific things you can do to be mindful of your spending and redirect some of that cash to your savings goal.
Cut out emotional and aspirational spending
A great place to start reducing your spending is by cutting back on the types of purchases that serve you the least. For many, that’s emotional spending and aspirational spending. They’re different, but they both stem from using spending money as a sort of coping mechanism for something that could be resolved without making any purchases. Cutting out these types of impulse purchases can help you free up money to save without sacrificing much. (Read the linked blogs above for a step-by-step process on how to do it!)
Review recurring non-essential purchases
The next place to evaluate your spending: look over purchases you make regularly that you could skip entirely (at least for now). Whenever you make the same type of purchase over and over, it’s easy to lose track of how much you’re actually spending.
For now, think about those things in life that you buy to make life better in some way – more convenient, comfortable, enjoyable – but that you could go without, or do yourself. Review your purchases from the past few months, and look out for these categories:
- Dining out
- Coffee, tea, and beverages on the go
- Delivery services
- Personal care or beauty services – haircuts, nails, etc.
- Entertainment
- Tech purchases/electronics
- Home décor
- Taxi/rideshare rides, valet parking
If you use the Milli spending card, you can easily see purchases under a certain dollar amount, category, or merchant. That can make it easier to pinpoint a clear spending culprit.
When you’re budgeting, you should factor in some money for fun, optional purchases – you don’t have to live like a monk in the name of saving! If you cook all your meals at home except for your monthly date night dinner out, don’t skip that, because that’s what makes life worth living.
Find yourself at the nail salon a lot? Pull out the polish and practice your DIY manicure!
If you can redirect your money for a larger goal instead of a purchase you won’t remember a few months down the line, that’s a solid option to adjust your spending while still aligning with what matters most to you.
Review subscriptions
We know, we know – every blog post with suggestions to save money says to cut out your subscriptions. It’s an easy place to start, but we promise – we have a more nuanced take.
For the record, do still review your subscriptions; you may be surprised how many you don’t use. If you have streaming services for entertainment, or software, make sure you’re actually using them, or cancel or pause if you’re not. Can you make it work with just one streaming service rather than two or three? Can you compromise and downgrade your plan and sit through ads to save some money?
Sometimes, subscription services provide a better value or meet a need you can’t meet elsewhere. If you live in a food desert, then keep that meal kit delivery service if it means you don’t need to spend more money eating out. But if there are any subscriptions you use for convenience, or just to have something fun to open in the mail… well, we have to agree with the other financial blogs that say to kick those to the curb.
Comparison shop
The biggest opportunities to cut back your spending are usually the optional things in life, but it’s worth reviewing how much you spend on essentials. Go over how much you’re spending on budget line items like groceries, insurance, and cell phone service. Do some comparison shopping to make sure they are not taking more of your budget than they have to.
- Is there a more affordable grocery store in town? Can you spend less on groceries by shopping in bulk?
- Do you need the top tier cell phone and internet plan, or can you switch providers?
- Can you ask for loyalty discounts to be applied to your account in lieu of getting the new customer special offer?
- If you’re buying something in store, will the retailer price match a lower price online?
Before buying new items or signing up for new services, make it a habit to google around to make sure you’re getting the best deal. So long as you’re nice about it, most cashiers or customer service agents are happy to help you save money by price matching if the company allows, so don’t be afraid to ask!
Leverage your 401(k)
Contributing to your 401(k) retirement account is another way to save money by adjusting your spending. This tip seems counterintuitive, or at least is playing the long game, because unless you have reached retirement age, you won’t be able to touch the savings from a 401(k) for a while.
But, contributing to your 401(k) will reduce your taxable income. This could help you owe less in taxes, meaning you’ll “spend” less on taxes. Then in the next calendar year if you receive a tax refund (in part thanks to contributing more to your 401k), you can put that toward the $5,000 savings goal.
Or, if you’re just looking to save money without a specific purchase in mind, this could work well because it comes directly out of your paycheck and is set aside for retirement. There’s no additional step required.
How to Earn Extra Money
Whether you have $5,000 of wiggle room in your budget or not, if you want to save more, it helps to earn more money. We’ll dig into some ways to increase your cash flow.
Increase your base pay
The easiest way to have the wiggle room to save $5,000 is to earn more at your primary job. Whether you ask for a raise, promotion, or find a new opportunity, negotiating an increase in your salary or hourly rate is a great place to start.
Depending on your current pay rate, increasing your annual pay thousands of dollars per year may range from life-changing to barely a cost-of-living adjustment. Breaking it down, depending on your tax rate, earning an extra $7,000 per year or $3.50 per hour for full-time work could net you $5,000 in disposable income.
Plenty of careers have a wide range of pay rates, and salary transparency laws are helping people earn their worth. We cover how to increase income to increase savings in depth. Check it out for tips to ask for a raise, advocate for a promotion, or evaluate other career opportunities.
Overtime pay
Another way to increase your pay, if your profession offers it, is to work overtime. However, the feasibility of overtiming your way to an extra $5,000 in savings will depend on your overtime rate and how much overtime you are able to take.
If your hourly rate is in line with the United States average of $33.44 for private sector workers (Bureau of Labor Statistics as of May 2023), and your overtime rate is 1.5x, it could take 139 hours of overtime to hit your savings goal. The number of hours it would take will be more or less based on your overtime rate.
Nothing like the camaraderie of working overtime with your team!
Freelance/Consulting
Looking for a way to build a new income stream? Freelance work or consulting can be a lucrative way to create a stream of revenue.
It may seem like a lot if you’ve never done this kind of work before, but it’s more feasible than you think. If you can find one client and charge $580 per month, or a lump sum contract of $7,000, you’ll be able to get that $5,000 after taxes. Or, you could find two clients at a rate of $290 per month or two $3,500 projects. It can be that manageable!
Lots of small businesses know they need help and want the flexibility of a contract hire. They may be thrilled to find someone with your skills who can offer ongoing help, or come in for a clearly defined one-time project. It may feel scary to put yourself out there and ask for that sum of money, especially if you’ve never been self-employed. But if you have education and/or skills you’ve honed, chances are there is someone out there who is willing to pay for your expertise.
A great place to start consulting or freelancing is by leaning into your existing skill sets or a role that you are strongly experienced in. You can also explore a hobby or other random skill you’ve picked up along your life’s journey and turn that hobby into money.
So how would you actually find a client? Brush up your LinkedIn profile, reach out to your professional and personal network (especially small business owners), then showcase the services you offer on your social channels, a personal website or one-sheet PDF. Do some research about the going rate for your services, and charge a fair rate. Educate yourself on self-employment taxes and write-offs with the IRS’s Self-Employed Individuals Tax Center and get started freelancing!
Gig economy work
Does taking on freelancing or consulting work seem like an uphill battle, or do you want to start earning more money right away? Gig economy work, like driving for rideshare or food delivery services, offers the benefit of being able to start and earn money within a few days.
How much can you realistically earn with gig economy work? Ridester, a resource for information about the on-demand transportation industry, reports that Lyft drivers in Tampa, Florida can earn as little as $12.71 per hour while the top of the range is $23.28 in the San Francisco Bay Area. The same article lists an average hourly pay of about $17 as reported on Glassdoor.
For grocery delivery with Instacart, Ridester reports that the typical pay per order is $10-$20, but tips can increase that. Smaller orders take less time, but pay less; larger orders take more time, but pay more – so it’s a balance to find the most “profitable” jobs.
How much you’ll actually earn from these sorts of gigs will range based on a lot of things, such as the service you use, your region, the time of day you’ll work, and cost to run your vehicle (if it’s a driving based service). Do research on forums like Reddit, Facebook groups, and Discord servers to learn about which gig economy services pay the best in your area and get other tips to maximize your earnings.
If you’re looking to save $5,000 in a year, you could need to work somewhere in the ballpark of 400 hours per year – or 8 hours per week – if you were to earn the full amount from gig economy work.
Conclusion
If you set a goal to run a marathon, you don’t get there just by lacing up a pair of shoes and running 26.2 miles on your first try. You start by first making a training plan, running shorter distances to build up your endurance, stretching, and fueling your body differently (hello post-run protein shake). Saving money is the same way!
Whenever you have a substantial savings goal, like saving $5,000 in one year, you’ll start by making your training plan (your budget), then build up your endurance (cutting your spending), and fueling your finances differently (earning more money). You’ll probably need to mix and match different ways to cut your spending and increase your cash flow to find a savings plan that works best for you!
Best of luck with your savings goal – and know that Milli is here to help you save more for the things that matter most to you.
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