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How Do I Create an Easy Savings Plan?

Saving money is crucial for both immediate needs and long-term goals. This could mean building a safety net for surprise costs, saving for a fun vacation, or putting money away for a house down payment. In the UK, around a third of households have no savings, showing how essential it is to start putting money aside. Whether it’s for unexpected expenses, enjoying a break, or making a big purchase like a home, having a savings plan helps you feel secure and ready for the future.

savings in piggy bank

Understanding a Savings Plan

A savings plan helps you gather money to meet your financial goals. It clearly outlines these goals and the steps to achieve them. Your goals might be:

  • Saving for emergencies
  • Planning a vacation
  • Arranging a wedding
  • Buying a house
  • Fixing or upgrading your home
  • Buying a car
  • Saving for college
  • Planning for retirement

Your personal financial situation will determine the financial goals you set in your savings plan.

How to Build a Savings Plan

Building your own savings plan is straightforward. Here’s a simple guide to help you through the process.

Step 1: Assess Your Finances

Start shaping your savings plan by understanding your financial situation. Create a financial inventory, a list showing your available cash and debts.

List down your assets, including:

  • Cash on hand
  • Balances in checking and savings accounts
  • Money in money market accounts and Certificates of Deposit (CDs)
  • 401(k) and other retirement plans from your job
  • Individual Retirement Accounts (IRAs)
  • Funds in Health Savings Accounts (HSAs)
  • Any brokerage accounts

These assets are quickly accessible as cash. You might also own other valuable items like cars or property, but these take longer to convert to cash.

Next, list your liabilities, such as:

  • Credit card balances
  • Student, car, and business loans
  • Mortgage payments
  • Personal loans
  • Outstanding medical bills

To find out your net worth, subtract your total liabilities from your total assets.

Tip: There are online calculators available that can help estimate your net worth as part of taking inventory of your finances.

Step 2: Set Clear Savings Goals

The next step is to pinpoint your savings targets, both short-term and long-term, and incorporate them into your plan. Short-term goals focus on immediate needs. A common example is building an emergency fund. In fact, a 2021 survey by the Bipartisan Policy Center found that 45% of workers would struggle to cover a sudden $400 expense.

Conversely, long-term goals don’t require immediate funding. They could include saving for retirement or a child’s education. These goals typically involve larger sums of money, but you also have more time to achieve them.

When establishing your financial goals, use the S.M.A.R.T. criteria:

  • Specific: Define your goal clearly.
  • Measurable: Ensure you can track your progress.
  • Achievable: Make sure it’s possible to achieve your goal.
  • Realistic: Set a goal that is practical.
  • Time-bound: Assign a deadline to your goal.

For instance, instead of a vague goal like “save for emergencies,” aim to “save $10,000 in 12 months.” This goal is clear, trackable, achievable within a set timeframe, and it challenges you to save a specific amount each month. The next step in your savings journey will help you figure out exactly how much you need to save regularly to reach your goals.

calculating net worth

Step 3: Work Out Your Savings Contributions for Each Goal

A successful savings plan requires commitment and a regular monthly contribution. If you already follow a monthly budget, you should have a good idea of how much you can afford to set aside for savings. If you’re new to budgeting, start by calculating your monthly income and deducting your expenses to figure out your available savings amount.

Imagine you have three savings goals:

  1. Vacation fund: $2,000 in 6 months
  2. Home repair fund: $5,000 in 6 months
  3. Emergency fund: $10,000 in 12 months

You would need to save:

  1. $333 per month for the vacation fund
  2. $833 per month for the home repair fund
  3. $833 per month for the emergency fund

In total, that’s $1,999 per month, leaving you $81 short. To cover this shortfall, you might look at your budget again to find areas where you can cut spending and reallocate that money to your savings. Achieving this balance ensures your savings plan is specific, measurable, achievable, realistic, and time-bound.

Step 4: Choose the Right Place to Store Your Savings

With your savings goals set, the next decision is figuring out where to keep your saved money. Your choices include:

  • Savings accounts
  • Money market accounts
  • Certificates of Deposit (CDs)
  • Tax-advantaged accounts like 401(k)s or IRAs
  • Taxable investment accounts

The best option depends on the goal. For quick access in emergencies and decent interest earnings, a high-yield savings account fits well.

For retirement savings, tax-advantaged accounts offer benefits but usually penalize early withdrawals before age 59½. On the flip side, taxable investment accounts via online brokers work for various goals, though profits from sold assets may attract capital gains tax.

Step 5: Make the Most of Your Savings Plan

With your savings plan ready, it’s time to ensure you’re utilizing it to its fullest potential. If your workplace offers a 401(k) plan, verify that you are contributing enough to get any employer match, as this is essentially free money. You might need to talk to your benefits coordinator to up your contributions if you’re not fully taking advantage of the match.

Additionally, any unexpected money—like tax refunds, which averaged at $2,775 in 2021—can go straight into your savings, sidestepping the urge to spend. Allocating these windfalls to your savings goals boosts your progress.

Regularly review your plan, at least once a month, to track your progress, reassess your budget, and find opportunities to save even more. This constant attention helps ensure your savings plan is working as hard as it can for you.

In conclusion, creating a good savings plan is important for a secure financial future. Follow the simple steps: understand your money, set clear goals, decide how much to save, choose the best place to keep your savings, and make the most of your plan. Stay committed, check your progress often, and adjust your plan as needed. Doing this will help you reach your financial goals and give you peace of mind.

If you want further advice on how to handle your money and prepare for the future, don’t hesitate to contact the team at Count today!  

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