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Saving money doesn't have to mean making drastic changes to your lifestyle. By following an easy-to-implement strategy called "habit stacking," you can gradually incorporate small, manageable habits into your routine that can have a big impact on your financial health over time.
Habit stacking involves pairing a new habit with an existing one, making it easier to stick to because it's anchored to something you already do. Here are the top seven ways to habit stack and save money, helping you build a solid financial foundation without feeling deprived.
1. Eat Out One Less Night a Week and Transfer the Savings
One of the easiest ways to start habit stacking is by reducing how often you eat out. If you typically dine out three times a week, try cutting back to two and cooking at home or preparing a meal in advance. Then, take the money you would have spent on that extra meal out—let’s say $10—and set up an automatic transfer of that amount into your savings or investment account every week.
The Impact: By saving just $10 a week, you'll accumulate $520 in a year. Over 20 years, with an average annual return of 3%, this small habit could grow to nearly $13,000. This simple change can be a game-changer for your financial future, and it doesn’t require a significant sacrifice.
2. Contribute to a Roth IRA by Cutting Out a Subscription Service
We all have those subscription services we barely use but continue to pay for each month. Whether it's a streaming service or an app you rarely open, canceling just one of these can free up to $30 per month. Instead of letting that money sit in your checking account, set up an automatic contribution to a Roth IRA*.
The Impact: By growing your monthly contributions to $583 per month over time ($7,000 per year) to a Roth IRA, with an average annual return of 5%, you could potentially grow your investment to $256,982 in 20 years. That’s a significant boost to your retirement savings, achieved by simply cutting out a subscription service you won’t miss.
*The IRS limits high-income earners’ ability to contribute to a Roth IRA. In 2024, contributions begin to phase out for single people earning $138,000+ and married couples earning $218,000 and more.
3. Round Up Your Purchases and Invest the Spare Change
Many banks and financial apps offer a feature that rounds up your purchases to the nearest dollar and automatically invests the spare change. This is a great way to habit stack because you're building your investment portfolio with money you hardly notice is gone.
The Impact: While the individual amounts might seem small, rounding up every purchase can add up to a significant sum over time. If you round up an average of $1 per day, that’s about $30 a month or $360 a year. Invested over 20 years with a modest 5% return, you could grow this to approximately $12,000—effortlessly.
4. Review Your Budget with Your Morning Coffee
Make it a habit to review your budget while you have your morning coffee. This simple practice keeps your financial goals top of mind and helps you catch any unnecessary expenses before they spiral out of control. It also gives you a moment to assess your progress toward your savings and investment goals.
This is super easy to do by downloading your bank’s mobile app or by signing up for a more robust spending app like my favorite, Monarch Money.
The Impact: Regularly reviewing your budget can help you identify areas where you can cut back and save more. Even if you only find an extra $25 per month to save, that’s $300 a year. Over 20 years, invested at a 3% return, that’s another $8,000 in your pocket.
5. Automate Your Savings with Every Paycheck
Hopefully you’ve already set up an automatic contribution to your employer’s 401(k) or similar plan. Another powerful way to habit stack is by automating your savings every time you get paid. Set up an automatic transfer from your checking account to your savings to build an emergency fun and then to an investment account every payday. By doing this, you’re prioritizing saving before you have a chance to spend that money on something else.
The Impact: If you automatically transfer $100 from every paycheck to your savings account and get paid bi-weekly, you'll save $2,600 annually. Over 20 years, with an average return of 3%, that’s nearly $70,000—all from making your savings automatic.
6. Pair Online Shopping with a 24-Hour Waiting Period
Before you make any non-essential online purchase, implement a 24-hour waiting period. During this time, think about whether you really need the item or if the money would be better spent elsewhere (like in your savings or investment account). This habit helps reduce impulse buys and gives you time to make more intentional financial decisions.
The Impact: If this habit helps you avoid spending just $50 a month on unnecessary purchases, that's $600 a year. Over 20 years, with a 5% return, you could have an additional $20,000 saved—just by waiting a day before clicking “buy now.”
7. Turn Off the Lights and Invest the Savings
Make it a habit to turn off lights, unplug electronics when they’re not in use or turn up your air conditioning by a degree or two. You can stack this habit by immediately transferring the amount you save on your electricity bill to a savings or investment account each month.
The Impact: If you save $10 per month on your electricity bill by being more energy-conscious, that’s $120 a year. Over 20 years, with a 3% return, those small energy savings could grow to $3,100—proving that even tiny habits can make a big difference.
Start Small, Think Big
Habit stacking is a powerful tool that can help you make small, sustainable changes to your spending and saving habits. By incorporating these simple strategies into your daily routine, you can build a solid financial foundation over time without feeling like you’re making huge sacrifices.
Remember, it’s not about overhauling your lifestyle overnight; it’s about making tiny adjustments that lead to significant long-term rewards. Start with one habit today and watch how your finances—and your peace of mind—improve over time!
For more tips like these, download my free ebook series that covers debt management, growing your income to save more, investing wisely and retirement planning. To learn what it's like to work with a financial advisor, you can book a free call with Life Story Financial.
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