Financial advisors often recommend that their clients create personalised savings plans, and for good reason. A savings plan can help you to focus on your goals and motivate you to achieve them by encouraging you to manage your expenses more successfully. These step-by-step instructions outline the essential steps for creating a savings plan, whether you’re saving for a major item such as a deposit for a new house or a smaller expense such as an overseas holiday.
1. Identify the goal
Start by identifying what you want to buy or achieve. For example, you may want to grow your retirement funds, pay off your credit cards, or buy a new car. List all your goals and categorise them as ‘short term’ or ‘long term’. Define these goals in detail so you can accurately work out how much you’ll need.
Examples of short-term goals include buying a new sofa, taking a trip to Europe, creating an emergency savings fund, or saving up for a wedding. Longer-term goals might be paying off the mortgage or buying an investment property.
2. Calculate how much you need
The next step is to work out how much money you’ll need for each goal. You may need to do some research for this step, so that you can find out realistic prices and costs for the items or outcomes you’re saving up for.
3. Determine how to save
Once you have identified your goals and calculated how much you’ll need, you can decide how much of your income will be diverted towards your new savings goals. Review this step in the context of your budget and expenses. For example, you might be able to allocate 5% of your current income toward your savings goals. If you have a high income, you might be able to allocate 20% of your income toward a savings goal.
Write down the precise amount you need to save for each pay period and brainstorm a range of ways to cut back on spending. Write down and review each expense category such as utilities, entertainment, and groceries as you look for ways to reduce costs.
4. Set a timeframe for achievement
Once you identify how much you can save, you can calculate how long it will take for you to save up for each goal. Set a timetable for each savings goal. You could create a plan that takes into account more than one goal or purchase at the same time or you could decide to focus on one goal at time.
5. Committing to your goals
Here are some ways to help keep your motivation up so you can stay committed to your financial goals over the long term:
- Regularly review your plan. Stay committed to your goals by regularly reviewing your savings plan. Take a few minutes every fortnight or month to read through your savings plan and remind yourself of your goals, while also taking pride in how much closer you are to those goals.
- Check your progress. Use your budget to check your progress on a regular basis. Review your expenses and savings to check that they are on track as planned. If you don’t already have a budget, set up a budget to track your ingoings and outgoings.
- Find the right tools. There are numerous tools that can help you manage your savings plan. Savings and budgeting apps or calculators can be used to simplify the budgeting process, while high-interest savings accounts allow you to save more quickly. Other examples include automatic deductions into a savings account.