A personal savings plan can help you reach your personal savings goals. Here are four common steps to create a plan and keep track of your goals. If you need additional help with financial planning, a financial advisor can also work with you in creating a financial plan for your savings, investment and tax needs.
Why Make a Savings Plan?
A savings plan can help you achieve your savings goals and make you feel better about where you stand financially. If you are naturally frugal, you might think you don’t need a personal savings plan. But if you aren’t working toward any specific goals, spending money on things you can live without can happen.
For example, you may have some subscriptions you can eliminate or have full coverage on your 10-year-old car. Many of us pay these ongoing expenses automatically, so paring them down requires a conscious effort.
A personal savings plan can also make you more motivated. If you’re of the mindset that you are doing just fine, you probably won’t feel the need to save more. A personal savings plan shifts your mindset toward one of intentionality.
4 Steps to Create a Personal Savings Plan
For a personal savings plan to be successful, there are specific steps you should follow to help you save more. Follow these four to get started:
Determine Your Savings Goal
The first step to a successful savings plan is deciding why you are saving. For instance, you might save for emergencies, a vacation, or a down payment on a home. Your goal can be whatever you want, but the idea is to have something specific in mind.
You might have more than one thing you want to save for simultaneously. Some online savings accounts have “buckets” that let you maintain multiple savings goals. However, you will contribute less to each bucket each month if you have more than one savings goal.
Determine How Much You Need
To decide how much to save each month, you should first determine how much money you need. For example, suppose you want to take a vacation but don’t know how much it will cost. If you know you will have to fly and stay in a hotel, you can look at travel booking sites to estimate the cost. You can also give yourself a daily food budget, like $50.
Other expenses might include things like renting a car or buying souvenirs. Suppose that when you add everything up, you estimate your cost to be around $2,500. You might want to save a little extra, but this gives you a concrete amount.
Now, suppose you want to take this vacation 12 months from now. $2,500 works out to a savings of $208.33 per month. Now it’s time to spring into action.
Reduce Expenses or Increase Your Income
Now that you know exactly how much you must save each month, you can start looking for some extra dollars. If you do your banking online, you can comb through your bank and credit card statements to look for savings opportunities. Perhaps you have subscriptions you can cut or are paying too much for a service. Or maybe you can cut back on dining out. Making a few small tweaks here and there can add up.
If you have cut everything you can and you still haven’t reached your savings goal, you might have to increase your income. There are many ways to do that, but it’s often easiest to ask for a promotion or apply for a higher-paying position within your company. If that isn’t possible, you might consider working a second job. If you only need an extra hundred dollars or two per month, a few extra hours per week might be enough.
Automate Your Savings
Once you have the extra money you need each month, the last step is to automate. Many online savings accounts let you move money from your bank account automatically. As a result, you won’t be tempted to spend the money as the transfer will happen in the background. You might even forget about the transfer entirely.
Plus, online savings accounts often have the added benefit of paying higher interest rates than traditional banks. You can save as much or as little as you want in an online savings account. And as mentioned earlier, some have savings accounts have buckets so you can save for more than one goal at a time.
Whether you struggle to save or are naturally frugal, a personal savings plan can be invaluable. The goal is to make it specific and determine exactly how much you need. That way, you can take steps to cut back on expenses or increase your income. Lastly, you can automate your savings to make the process seamless. Once your savings plan is in place, you won’t have to maintain it much – if at all.
Tips for Saving Money
- A financial advisor can help you work through your banking needs and put together a plan that works in your unique situation. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- The best savings accounts pay some of the highest rates and often do away with costly fees. See SmartAsset’s list of the best savings accounts to find one that’s right for you.
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