How To Develop a Savings Plan

Saving money is integral to financial health and well-being. A solid savings plan can lay the groundwork for future goals, while providing necessary protection in the event of a financial crisis. Developing a savings plan requires prioritizing spending, budgeting, and setting aside a portion of your income. This article will discuss the importance of setting up a savings plan, steps to take in doing so, and tips to help stay on track and make the most of your savings.

Why Develop a Savings Plan?

Developing a sound savings plan has many advantages. Having a plan in place helps you stay organized and informed about your finances and highlights potential risks so you’re better able to avoid them. Additionally, a savings plan can help you build wealth and secure your financial future. There are many anecdotal benefits to saving money, such as having peace of mind and being prepared for retirement and other major life expenses. Ultimately, having a clear plan in place can help you stay focused and in control of your financial future.

Steps Toward Creating a Savings Plan

Before beginning your savings plan, assess your current financial situation. Knowing your income and expenses can help you create an effective savings plan. Then, evaluate your goals and assess whether they’re realistic in the timeframe you want to achieve them.

When devising a plan for your savings, consider how much money you wish to set aside each month and for how long. Ideally, you should aim to save 10% of your income for your long-term goals. You should also decide where your savings money should be stored — a traditional bank account, an online savings account, a money market account, or other higher-yielding accounts. Consider which establishment is insured and provides favorable interest rates on your money.

Once you have determined where to store your saved funds and how much to save, determine how much of your income you should use for discretionary spending. Discretionary spending consists of items such as entertainment, dining out, and shopping, among many others. Knowing how much of your income is available for discretionary spending allows you to control your budget more effectively and build up a larger savings account over time.

To help you stay on track with your savings, establish an account that separates your income and expenses. This can help you avoid dipping into your savings for discretionary spending and makes tracking your spending easier.

Tips for Sticking to Your Savings Plan

Once you’ve established a savings plan and allocated money for discretionary spending, it’s important to learn how to stick to your plan. One way to ensure you are adhering to your budget is to create a list of spending rules. This might include things such as always carrying cash instead of using a credit card and avoiding impulse buys. You should also track your spending regularly using budgeting software or online money management applications.

Another way to stick to your savings plan is to set up automatic payments. Many banks and credit unions offer the ability to set up automated transfers from your checking account to your savings account on a certain date each month. Not only does this make it easier to stay on track, it also eliminates the temptation to dip into your savings account. Additionally, monitor the interest rates of your savings accounts. If the rate is lower than expected, consider switching to an institution with a more competitive rate.

To maximize your savings, take advantage of employer benefits and available tax deductions. For example, many companies provide a retirement account such as a 401(k), which has tax advantages. You should consider if you are eligible for additional tax credits or deductions. Additionally, setting rewards for yourself can be an effective way to motivate you to stay on track with your savings plan.

Closing Thoughts

Creating a savings plan is the first step toward a financially secure future. It requires assessing your current financial situation, setting long-term and short-term goals, and deciding how much money you wish to allocate for discretionary spending. Additionally, it’s important to set up an account that separates income and expenses and to track your spending regularly. Finally, by following the tips outlined in this article, you can find success in creating and adhering to a savings plan.

Sources

• Benefits of a Savings Plan, Investopedia
• 8 Steps to Creating a Savings Plan, CNBC
• How to Start Your Own Savings Plan, The Ascent
• Save Like a Pro: Six Quick Steps To Create An Effective Money-Saving Plan, Investor's Business Daily
• Create a Plan to Save Money, University of Maryland Extension