Think you can save $5,000 in a year? Saving money is an important personal finance goal — but with high inflation and increasing housing costs, it can be difficult to set aside almost any money at the end of each month.
But depending on your income and monthly expenses, it may be possible to enact some changes in your lifestyle to build up your savings, whether it’s for an emergency fund, vacation, house down payment, or wedding.
Below, you’ll learn:
• The benefits of saving $5,000 a year
• How to save $5,000 in a year, from selling your unwanted items to cutting your energy bill.
If you’re living paycheck to paycheck or just want to be able to cover your next unexpected expense, remember that any savings goal is admirable. You can pick and choose among these tips to come up with the right figure for your budget.
Is Saving $5,000 a Year Possible?
Saving $5,000 a year may sound daunting, but it is possible for some people. To save $5,000 a year, you’ll need to set aside just under $420 a month. That’s after all your other necessary expenses, like food, transportation, housing, health care, and utilities.
If you earn a healthy salary and/or have low expenses, saving $5,000 in a year may only be a matter of reprioritizing your spending. In fact, you might even be able to save $10,000 in a year if you earn enough.
But if you’re living paycheck to paycheck, have a high cost of living, or considerable debt, you may want to set a lower goal for the first year and increase your goal over time.
Get up to $250 towards your holiday shopping.
Open a SoFi Checking and Savings Account with direct deposit and get up to a $250 cash bonus. Plus, get up to 4.60% APY on your cash!1
Recommended: The Importance of Saving Money
Benefits of Saving $5,000 a Year
What are the advantages of saving $5,000 a year? Saving any amount of money can be beneficial, but $5,000 in your bank account can do a lot of good. Here are some of the benefits:
• Cover emergencies. More than half of Americans cannot cover a $1,000 emergency using savings. This means they may need to rely on a high-interest credit card or personal loan for things like a car repair and unexpected vet bills. With $5,000 in savings, your family could be prepared to tackle five $1,000 emergencies every year.
• Fund your passions. With $5,000, you may be more willing to spend money on something you really want: a family vacation, gifts for family and friends, a continuing-ed class, or even a charitable donation. By saving money for a year, paying for things you love is more attainable.
• Save for big purchases — or even retirement. If you’re hoping to buy a car or a house down the road, saving $5,000 a year could help get you there. Even more importantly, setting aside $5K a year means you can make strategic retirement contributions outside of your normal 401(k).
• Earn interest. If you store your $5,000 in a high-yield savings account, you’ll earn additional money just for keeping your cash safe in an FDIC-insured account. It’s a good idea to shop around for a savings account with a high APY.
Note: If you have high-interest debt, it might be a good idea to pay that down before aiming for lofty savings goals. Having a base emergency fund is wise, but beyond that, the debt could be costing you more than you’re saving.
Recommended: Easy Ways to Save Money
How to Save $5,000 in a Year: 12 Helpful Tips
Wondering how to save $5K in a year? Here are 12 tips that could help you on your savings journey:
1. Knowing Your ‘Why’
Knowing what you are saving for could give you the motivation to keep stashing away cash. Whether it’s creating an emergency fund for your family or saving for a big vacation, keeping that long-term goal in mind might make it easier to resist the temptation to spend some of your savings or give up altogether.
2. Setting Your Goals
Hitting $5,000 a year can be daunting, but if you break it up into smaller, more attainable goals, you might realize that it’s not so bad. To save $5K a year, you’d need to hit $416.66 a month.
If you receive a paycheck every two weeks, that’s 26 paychecks a year. You’d need to set aside roughly $192.31 per paycheck, which sounds more manageable than $5,000.
If your pay is variable and you can predict when you might earn more (or if you have a dependable annual bonus that always hits at the same time), you can factor such irregularities into your money saving goals and plan accordingly.
3. Creating Your Budget
How to save $5,000 in a year can be helped along by a solid budget guiding your efforts. A monthly budget is a helpful tool for visualizing how much money you make (after taxes) and how you spend that money. If your goal is to save $420 a month when you weren’t before, you can use the budget to look for ways to cut back expenses and make the savings possible.
How you create your budget is up to you. Some people swear by the 50/30/20 budget while others prefer the envelope budgeting method. Personal finance gurus may want to handle budgeting all on their own with spreadsheets or pen and paper while others might benefit from an app. Whatever method you choose, building flexibility into your budget can be helpful.
4. Tracking Your Spending
Budgets aren’t a set-it-and-forget-it resource. To stay within your budget, it’s important to monitor your purchases and spot spending habits that may be working against your savings goals. It’s OK to slip up — but learning from those mistakes can be the difference between living paycheck to paycheck and saving $5,000 a year (or more).
5. Reducing Entertainment Costs
One of the easiest costs to cut is entertainment because it’s not crucial to survival in the way that food and shelter are. This doesn’t mean you have to give up all entertainment spending; life would be very boring without it!
What it does mean is you can look for ways to reduce your entertainment spending, like:
• Inviting friends over for a board game night instead of going to a bar
• Saving money on streaming services and other subscriptions by canceling those you don’t use often
• Learning to cook new recipes at home instead of ordering takeout
• Taking advantage of group discounts on fun events like concerts or sports games.
6. Becoming Energy-Conscious
You can save money on your utility bills by adjusting your thermostat: Keeping it a little warmer in the summer and a little cooler in the winter can reduce electricity and natural gas usage. Taking shorter showers and running the laundry only when you have a full load are easy ways to shrink your electric and water bills.
The less you’re spending on utilities, the more you can afford to save. Every little bit helps.
7. Shopping Around for Better Deals
Buying in bulk is a great way to save on groceries and household supplies, and using coupons at the grocery store can make those savings even better. Beyond the grocery store, you can find other great deals to cut costs. For instance, you might be able to lower your car insurance premium by raising your deductible or simply switching to a different insurance provider. Bundling your car and homeowners or renters insurance can also deliver savings.
8. Getting a Side Hustle
Cutting costs can only go so far toward your savings goal if your biweekly paycheck just doesn’t have any wiggle room. If you have the time and energy, you can earn extra income with a side hustle.
You might be able to use your existing skills for a side hustle. Musicians can teach lessons online, coders could build websites for clients on the weekend, or you could even start a wedding photography business if you’re good with a camera.
But you don’t need special skills to start a side hustle. You might be able to land a side gig walking dogs, delivering food, or fulfilling online grocery orders.
9. Telling Friends and Family
Speaking with friends and family about your savings goals is important. Doing so can set the right expectations with them. If they know you’re serious about saving, they may be more likely to suggest staying in for a game night or skipping Christmas and birthday gift exchanges.
10. Selling Items That You No Longer Use
Online marketplaces like Amazon, eBay, Craigslist, and Facebook Marketplace make it easy to sell items you no longer want. Some items to consider offloading are clothing, jewelry, kitchenware, electronics and video games, and furniture.
Recommended: 37 Places to Sell Your Stuff
11. Opening a Separate Bank Account
Seeing the money you’ve saved in your online bank account every time you open your app may entice you to spend it. If you’re struggling with that temptation, it might be wise to open a separate savings account in which to store your savings each month.
Plus, if you find a bank account with a higher interest rate, you’ll grow your savings even faster. Typically, online banks offer better rates than traditional banks, since they don’t have the overhead of brick-and-mortar locations. They can then pass the savings on to their clients.
12. Rewarding Your Success and Milestones
Saving money can be hard work. If you’re sacrificing too much along the way, you might lose your motivation and give up altogether. It’s OK to celebrate your success and milestones with a special night out or a relatively big purchase on something you really want — every now and then. Everything in moderation, as the saying goes.
With the right income and discipline, saving $5,000 in a year is possible. To be successful, it’s a good idea to define your goals, build a budget, cut unnecessary expenses, and even look for alternative sources of income. Having a high-interest bank account with automatic savings features can also be useful.
3 Money Tips
1. Signing up for your paycheck to be directly deposited in an online bank account is a great way to help you pay your bills on time. After all, if your check is being deposited like clockwork, you can schedule bill payments ahead of time.
2. When you overdraft your checking account, you’ll likely pay a non-sufficient fund fee of, say, $35. Look into linking a savings account to your checking account as a backup to avoid that, or shop around for a bank that doesn’t charge you for overdrafting.
3. If you’re faced with debt and wondering which kind to pay off first, it can be smart to prioritize high-interest debt first. For many people, this means their credit card debt; rates have recently been climbing into the double-digit range, so try to eliminate that ASAP.
Is saving $5,000 a year good?
Saving $5,000 a year can be a good amount to have on reserve. With $5K in savings, you’ll be more prepared to tackle emergencies without needing to rely on a credit card or personal loan.
Is $5,000 a lot to save in a year?
Saving $5,000 can be a lot, depending on your income. When setting an annual savings goal, it’s important to consider how much money you make, your current debt, and your monthly expenses. Remember, any money saved is an admirable thing.
What happens if I don’t reach saving $5,000 in a year?
If you don’t reach your $5K savings goal, don’t sweat it. You can always try again next year, and you’ll still have saved some money which is definitely better than nothing in the bank.
Does the envelope method help for saving $5,000 a year?
Some savers like using the envelope method (dividing their income up into envelopes labeled with their purpose) for their savings goals. There are several budgeting methods and resources available; often, success is just a matter of finding the right method and resource for you.
Photo credit: iStock/Dmitriy Sidor
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.
SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet..