It is important to create a savings plan to strengthen your financial life. Your savings will help you when you retire, have a medical emergency, lose your job, or cover any other unexpected expenses. Here are five easy steps to help you create a savings plan and stick to it to secure your future financially.
What is a Savings Plan?
A savings plan is a technique to collect funds necessary to fulfill specific financial goals, such as emergency savings, vacation, buying a home or a car, college tuition, and retirement. Each type of goal requires a savings plan depending on the individual’s financial situation. A crucial way to create a savings plan is by developing a budget and allocating a part of your income toward that account on a regular basis. If you want to achieve your financial goal, consistency is the key.
Why is it Important to Create a Savings Plan?
Savings are essential for everyone, regardless of income, spending or age. Here are some reasons why you need to create a savings plan right now:
- Peace of Mind: If you know that you have certain funds saved for emergencies, there is a sense of peace. It helps lead a stress-free life knowing you can use that money during an unexpected incident.
- Better Financial Stability: Your savings plan is the answer to a number of questions regarding your financial stability. If you have a savings account in place, you can achieve the dream of buying a house someday, using the funds for your retirement, or even go on the holiday you have wanted.
- Plan Short-term Goals: With a certain amount of money saved in an account, savings can also help with short-term goals like planned home repairs or medical checkups.
- Family Security During an Unfortunate Event: By saving regularly, you can provide that financial security to your family they deserve. No matter the situation, your savings can act as a cushion for your family members and help them overcome any financial difficulty.
How to Create a Savings Plan in 5 steps
Take Stock of Your Finances
The first thing you’ll need to do is get a clear idea of your current financial situation. You can start doing this by going through your bank statements for the last few months. Combing your statement will help you determine how much money you can save. For instance, if you typically spend a big part or all of your paycheck before your next payday, you won’t be able to put away a large amount every month. So, thinking that you’ll be able to start saving around $1,000 each month is not realistic in this scenario.
Instead, you should seek out ways to ensure you can deposit a smaller amount, such as $50 per month, toward your savings account. Small steps like this are important when creating a savings plan as they make it easier for you to adhere to it. And when you abide by the plan, you create a series of wins for yourself that you can build on.
Reduce Your Spending
Once you’ve already started taking small steps, you may also be able to discover more savings by finding ways to reduce your spending. Remember that just because you are starting to save money it doesn’t necessarily mean that you have to give up your daily coffee runs or even the occasional dining out at your favorite restaurant. But if you are used to ordering lunches from restaurants while you are at work, you can introduce small changes and start packing a lunch from home 2 times a week, to begin with.
What if your budget is too tight and you can’t see any room to save? This sure is a sticky situation, but not one you can’t get out of. What you can do in this situation is try to find ways to increase your income. You can go about doing this by getting a side hustle or looking for another job with higher pay. Although it’s not always easy to earn extra money quickly, employing these strategies may help you get some breathing room in your budget.
Automate Savings
Forgetting to deposit your contributions is not an acceptable reason for your savings being less significant. Thankfully, you can now easily set up standing instructions with your account to transfer your planned contribution to your savings account automatically. Automating your savings means that you don’t miss a single contribution and your savings will keep growing without you having to do anything.
It’s best to schedule your automatic payments around your payday. This way, you can avoid overdrawing from your account as the deductions happen automatically when you have money in your account.
Maximize Yield on Every Dollar
If you are putting away a little money every month, you have to make sure you’re getting the most out of every dollar. But be aware, the average savings account gives you only 0.06% APY. Consider exploring high-yield savings accounts instead as they pay more. These are often available with online banks. As online banks don’t need to pay for real estate, they tend to give customers higher rates because of low costs.
The interest that you earn on your savings will continue to earn you more interest as time passes, plus you’ll always have your initial deposit. This compounding of interest will increase your balance much faster.
Keep Your Goal in Mind
After putting away a big chunk of your money, you might be tempted to use it from time to time. It’s important to review whether the expense you’re using it for is essential or not. If the expense keeps you from your goal and is not an emergency or big need, it’s better to not give in to that temptation.
Conclusion
This guide aimed at answering a poignant question: “How to create a savings plan and stick to it?” Once you have your savings plan in place, you must start working on ways to save as much as possible. From doing part-time jobs to making money from garage sales, you can earn extra money and save it for emergency use in several ways. Build a financial goal for every month to plan your savings better. Remember, a savings plan is an excellent step toward financial stability.
