How to create a personal savings plan
Everyone dreams of having financial security and being debt-free. But the reality is most Americans find it extremely difficult to achieve real financial independence. If you are living paycheck to paycheck, you probably spend a lot of time worrying about your overall money situation. Knowing that one unexpected financial event might trigger a monetary disaster can cause enormous stress- the effects of which can seep into all aspects of your life.
Always juggling your finances to make ends meet is not a pleasant way to live plus it makes it nearly impossible to reach your financial goals. But with careful planning, you can pay for the things you want in life without going into too much debt. A savings plan can help you achieve your financial goals in a patient and determined manner.
To create a personal savings plan, here are some things to consider.
- Make a list of your financial goals. Make a comprehensive list of all the things you want to save for. At first, this can be a broad list which includes absolutely everything you would like (a new home, a new car, a vacation). Then you can narrow it down to items you want to save for immediately. Everyone's lists will be different. No matter how many savings goals you have, a savings plan will keep you on track to achieve them.
- Determine the total cost of your goals. You need to calculate the cost of each item on your list. For the less expensive goals, such as a holiday or new flat screen TV, estimate the full cost. For big ticket items that you will pay for partially with a loan, such as a new home or car, figure out how much of a down payment you want to save for.
- Decide how much time you will need to save for each goal. The time frame to save for each of your financial goals will be different for each one. Some goals may only take a few months to save for while others may take years.
- Calculate how much you will have to save each month for all of your goals. There are worksheets available online which can help you determine how much money you need to save each month in order to reach your goals by your target date. Whether it's for a specific number of months or years, a savings worksheet can help you determine how much you need to put aside each month.
- Set your priorities. Look at your monthly target number and see how it compares to your current level of savings. If you need to save more (or begin to save) you will want to change your spending habits to free up more money. One way to do this is to cut your monthly expenses. Go over your budget and find ways to reduce your expenses. The money saved can go right into your savings.
Also, consider revising your goals. Some may be more important to you than others. You may even want to think about postponing some of them until your financial situation is more positive.
Building Your Savings
Whether it's a new car, a home, or early retirement, saving for your financial goals can help you get what you want without taking on huge amounts of debt. When you plan carefully and set realistic financial goals, your dreams can become reality.
The following suggestions can help you refine your own personal savings plan:
- For long-term and short-term goals, determine how much you need to save and for how long.
- Be sure your budget includes saving for your goals. Stick to it.
- Change your spending habits to better meet your savings goals.
- Put any extra income, such as a bonus or tax refund, into your savings.
- Use direct deposit to make deposits automatically into your savings accounts.
- When you pay off a debt such as a car loan or credit card, put the amount you were paying into your savings.
- Have separate savings accounts for special goals such as an extended holiday or college fund.
- Pay yourself first. Try to put away at least 5% of your total monthly income into savings.
- Do not carry much debt. Live on a cash-only basis. If you can't afford to pay cash for something, don't buy it.
- Little changes can bring about big results. $5 or $10 a week adds up. That's just one or two fewer cappuccinos or a lunch out per week. Take control of your spending.