Creating a financial savings plan can be overwhelming, but it’s a must. It’s one of the best ways to secure funds for your short- and long-term goals. These may include a retirement plan or child’s education. Tax Relief Center will make it much easier for you with smart tips.
In this article:
- Follow the General Rules on How to Develop a Financial Savings Plan
- Ensure the Success of Your Savings Plan by Knowing Your Goals
- Know Your Financial Situation and Make Smart Spending Choices
Financial Savings Plan | Build It in 3 Steps
1. Follow the General Rules on How to Develop a Financial Savings Plan
Begin the process of creating your financial savings plan with these tried-and-tested rules. You can apply them regardless of your financial goals or investment objectives:
Treat Savings as a Regular Expense
Perhaps you’ve learned the basic formula to saving is income less expense. The truth is you’re less likely to set aside funds in this manner. People are prone to spending, which may leave you with nothing else for saving.
Instead, do it the other way around. Subtract your earnings with your target savings amount, and then use the rest to cover your expense.
If you want something simpler, make savings a part of your list of mandatory expenses. This way, you can pay it along with your other regular bills.
Use an Automatic Deposit or Transfer System
A lot of financial institutions such as banks and credit unions now allow automatic transfer of a certain amount to your savings account. You can set your desired amount of money, and the system will do the rest. It’s advantageous since you’re less likely to forget saving funds.
Choose to Save Discretionary or Unexpected Income
Are you looking forward to certain tax benefits this year? Perhaps you’re about to receive a hefty tax refund.
You’re free to use it however you like. Meanwhile, if you don’t have any idea yet how to use it, it’s best to put it straight into your savings account.
In fact, you can be smart with your financial savings plan. Use your “spare money” to increase your contributions to retirement accounts and investment portfolios such as mutual funds. You are not only saving but also growing your money.
Divide Savings into Categories to Increase Your Motivation
Perhaps you have short-term goals such as paying the down payment of a house or taking a vacation. It can also be long-term such as covering college expenses, increasing investment funds and retirement funds including 401(k), or building your health savings account.
Breaking down your goals and categorizing them may be helpful in ensuring you can save money for each of them.
2. Ensure the Success of Your Savings Plan by Knowing Your Goals
Along the way, you will encounter some speed bumps that can have an impact on your savings plan. They may be challenging, but you can manage them when you have a specific goal or purpose. The question is, what is it going to be? Here are a few ideas:
A sound financial savings plan always includes an emergency fund. It’s the money you can use for possible big and urgent expenses such as hospitalization. You can also make use of it in case you lose your job and other forms of emergencies.
Most financial experts suggest savings of at least three to six months’ worth of monthly expenses. It depends on many factors such as job security, the possibility of an emergency soon, and income. Regardless, don’t settle for these months. Continue building it throughout the years.
When is the right time to start saving for retirement? Bankrate surveyed U.S. adults and found 22% of them regretted not saving for retirement early enough.
The best time is the earliest you can do so. This way, you can have enough period to save and build your wealth. Picture this out. In your 20s, financial advisers recommend a savings goal of 25% of your overall pay. By age 45, the official goal is 4 times your annual salary.
College costs at public four-year universities have risen more than 200% since 1988 and over 120% at private not-for-profit colleges and universities. It’s difficult to imagine this pace of increase for children’s education continuing over the next three decades.
Saving for a college education remains a worthy goal even with the high rates of potential costs. In 2012, more than 70% of college graduates had debt averaging $25,500 to $32,300, depending on whether they attended a public or private college or university.
3. Know Your Financial Situation and Make Smart Spending Choices
Everything you do with your money can have a huge effect on your financial savings plan. It includes your improving spending habits on a regular basis.
If you want to add more money into your savings account, consider cutting back on certain expenses:
Instead of Dining Out During Lunch, Bring a Brown Bag
This is the #1 savings tip from a self-made millionaire, Scott Alan Turner. Mr. Turner “brown bagged” his lunch for years and ate out infrequently. He also became a meal prepper, fixing food for the week on a single day. Buying fresh food in season, looking for proteins and staples on sale, and getting generics can save up to 30% on food bills.
Eliminate Hidden Charges and Fees
Look carefully at your monthly credit card and other bills. Are you paying unnecessary fees? Some companies charge for monthly “ID protection” and other services you may not need.
Pay bills on time to avoid late fees. Look for a no-fee checking account and other banking services and investigate banking with a credit union.
Most larger banks charge monthly account fees, which range from $12 to $25 a month, or annual maintenance charges. Credit cards for individuals with poor credit ratings may also include service fees and annual membership fees.
Do the same thing for other utility bills such as your water or electricity.
Buy Used When You Can
Another piece of advice from self-made millionaires and self-described “penny pinchers” is “buy used instead of new.” You may find incredible deals on used furniture, jewelry, and musical instruments. If you’re a sports enthusiast, you can often pick up inexpensive sports equipment. Used clothing, especially children’s and maternity apparel, are excellent buys.
Shop for the Best Mortgage, Loan, and Insurance
If you’ve got a good credit score and history, you can and should shop around for a better mortgage rate. You may also be able to consolidate and refinance student or other loans.
You can evaluate your auto, home, and life insurance every two years or more often. Shop around for the best rates and premiums.
Let’s face it: people wish to be wealthy or at least live comfortably, especially when they’re older. A financial savings plan can help you get there. You can have money for emergencies and important expenses such as tuition plans. You can secure your retirement and health care. With savings, you can have something to invest and grow your money. Don’t wait until you’re older to begin, though. Start today.
What are your tips on how to create a financial savings plan? Share them with us in the comments section below!