Saving money is essential for all your financial goals, from saving for a vacation to the down payment on a home.
In order to get a better overview of your finances and how you can achieve your short-term and long-term savings goals, you will need a savings plan.
We take a closer look at what a savings plan is and how you can create one to reach your financial goals.
What Is A Savings Plan?
A savings plan is simply a method to save money to achieve specific savings goals. This could be any type of financial goals, including:
- Retirement savings
- Emergency savings
- Buying a new home
- Buying a vehicle
- College or education fund savings
As your savings plan depends on your goal and individual financial situation, it is specific to you.
How To Create A Savings Plan
While a savings plan sounds very complicated, it is surprisingly easy. We put together a handy step-by-step guide to help you create your own personal savings plan.
Step 1: Create A Financial Inventory
Before you can start saving, it’s essential that you have a good overview of your current financial situation as this will shape your savings plan.
Make a list of all your financial assets that could be turned into cash quickly, including any bank accounts, retirement plans, investments accounts and health savings accounts.
You may also own a number of other assets that you might not turn into cash so fast, such as a vehicle or a home.
Next, make a list of all your liabilities, including student loans, credit card debts, mortgage, car loan and other debts.
Then, subtract the total of your liabilities from your assets. This will give you a financial net worth of all your assets.
Step 2: Set Your Savings Goals
Once you have a good understanding of your financial assets, you can set your goals. You can include long term and short term goals in your savings plan.
Generally, short term goals include all the things you want to save money for in the new future, whereas long term goals are goals that you want to achieve in the next few years.
Long-term goals, such as college or retirement, don’t require immediate cash but the savings pot needs to be larger for these goals.
When you set your goals, it’s essential that you keep them very specific and realistic. They should also be achievable with your current circumstances.
Set your goals with a clear amount of money you want to save and a deadline.
Step 3: Choose How Much To Allocate To Your Savings Goal
Once you decided on a savings goal, you need to think about how you are going to achieve it.
Saving money requires commitment, and you will need to put money aside regularly to save a sufficient amount.
The best way to save is monthly, as you can just put a sum of money into your savings pot from your monthly budget.
Usually, whatever money you have left over at the end of the month can be used for savings.
If you are not sure yet how much money you have left over each month, then create a monthly plan listing your incoming and your expenses.
Then subtract your expenses from your income and you have a sum that you can allocate to your monthly savings.
You will need to split this sum evenly across your regular saving goals.
If you have two short term goals and one long term goal, then try to put more against the short term goals and a little less into the long term goal.
It’s important to remember that any amount you can save helps towards your goal.
Step 4: Decide Where To Keep Your Savings
Now that you know more about your financial situation and your saving goals, you can think about where to keep your savings.
There are a few different options to save money, from the traditional savings account to taxable investment accounts.
Typically, a standard savings account is ideal for any type of savings goals. You will even accrue interest on your savings.
Make sure that you carefully read the details before you choose to open any kind of account, as the interest rates and other particulars can vary widely across banks.
You should also keep in mind that not all savings accounts can be accessed at all times.
Some savings accounts only allow you to withdraw money a couple of times a year, while you might get unlimted withdrawals with others.
If you want to increase your savings more rapidly, then an investment account can be a good option.
However, you will need to be fully aware of the risks with any type of investment, so make sure to check with your financial advisor.
There could also be tax implications when opening an investment account.
With taxable accounts or tax-advantaged accounts, you can yield some tax benefits but it’s good to check with a financial advisor first to understand the advantages and disadvantages.
Step 5: Make The Most Of Your Savings Plan
It’s not enough to just put a savings plan in place but you will also need to monitor it carefully and look for opportunities to maximize it.
Put any unexpected amounts of cash towards your savings goals, including any tax refunds or inheritance.
It’s a good idea to move this money straight to your savings account when you receive it, so you don’t get tempted to spend it.
Also, regularly review your savings plan to see how your savings are progressing. You may also want to look for new ways to save money or increase your income.
Looking at your monthly savings can be encouraging as you will see your savings slowly edging towards your set goals.
Final Thoughts
A savings plan is a structured way to save money for your financial goals. As a savings plan is individual to your financial situation and goals, you can easily create your own plan.
