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How to create a savings plan
Develop a realistic plan to achieve your financial goals.
You don’t need have a high income to have financial goals — with a savings plan it’s possible to go on that vacation you’ve always dreamed or put a down payment on a new home without going into debt. It may take a few months — or years, but if you follow a plan you can get on track to the financial future you want.
How do I set up a savings plan?
Once you determine what you want to save up for, you’ll need to work out how you’ll save and where. Here are six steps to help you set up a savings plan:
Step 1: Work out how much money you need to save
Whether it’s an emergency fund, a summer backpacking across Europe or a down payment on a house, you probably need a decent amount tucked away. Figure out exactly how much you need to save to meet your financial goal.
Step 2: Decide how long it’ll take to save up
Once you’ve arrived at a lump sum, determine how long it will take to save that amount depending on your income. For example, if you plan to save $10,000 to take a vacation within the next two years, then you should save about $416 per month. This amount could be a bit less, thanks to compound interest, but it’s better to run a bit over than a bit under.
Check our compound interest calculator
Step 3: Identify what type of savings account you want
To get the maximum annual percentage yield (APY), you need to set up the right account. The two main types of savings accounts are:
| Traditional savings accounts | Online savings accounts | |
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Step 4: Choose a savings account
Once you’ve decided which savings account type is right for you, it’s time to compare your options and choose one. If you’re looking for a high-yield savings account, look at online savings accounts as opposed to ones at traditional brick-and-mortar banks.
Quick tip
Reach your goals even faster by putting your savings on autopilot. Most banks let you set up recurring deposits from your checking to your savings account each month. That way your money is out of sight, out of mind. There are also money saving apps that will automatically round up your spare change and move money into savings for you.
Step 5: Create a budget
Working out a budget helps you stay on track to savings. Start a budget with these tips:
- Calculate your income. From your salary and investments to side jobs or child support, work out how much money you earn each week.
- Calculate your expenses. Work out how much money you spend each week and on what — groceries, rent or mortgage payments, gas, credit card payments, electricity, entertainment and more. Keep a running total of every expense for a couple of weeks to make sure you don’t miss anything. If you bank online, take a look at your recent transactions to help.
- Assess your expenses. Which of your regular expenses are essential and which are not? Are there any costs, like entertainment, eating out or traveling, that you can reduce or eliminate? Even necessary costs, like groceries, can sometimes be tightened up a bit by switching brands or watching for sales.
- Cut expenses. Start by budgeting for fixed necessary expenses like your rent or mortgage, credit card payments and student loans. With the money left, decide how much you need to spend on your flexible necessary expenses like groceries and toiletries. Finally, decide how much of your remaining income you’re willing to spend and how much you want to save, and then trim away at your expenses until everything fits in your budget.
Want to automate this process? Use a budgeting app to calculate, track and manage your expenses.
Step 6: Check your progress regularly
Monitor your weekly spending to see if you’re sticking to your budget, and make sure to adjust it whenever your financial situation changes. Review your budget periodically to see if you can divert more to savings than you originally thought. For example, maybe you can:
- Sell things you don’t use. Examine your living space and gather all the things you haven’t touched in a year. Have a garage sale or list them on a site like Craigslist — and then send that money to your savings account.
- Cut down on entertainment costs. Try to limit yourself to one TV subscription service and decide ahead of time how much you’re willing to spend — and then stick to it. Host movie nights at home instead of going to the theater or skip trivia at the bar in lieu of a game night with your friends at home.
- Do some basic energy efficiency installation around your home. This includes changing light bulbs, updating your heating and cooling systems if possible and putting sticky notes up if you need to remind yourself to turn off light switches and unplug laptops at night.
Ready to compare your savings account options?
Use the table to compare your savings account options. You can compare them by traditional and online savings accounts. Sort each table by APYs, fees and minimum deposits and compare up to four accounts side-by-side by clicking the “Compare” box next to your top choices.
How do I stick to a savings plan?
Many of us start out with plenty of ambition and the best of intentions, but within a couple of weeks our carefully crafted savings plan has fallen by the wayside. However, there are a few key things you can do to ensure that you stick to your plan.
- Tell your family and friends. You’re far less likely to just give up on your dreams if you’ve shared them with someone else, and you’re likely to get extra motivation if your commitment starts to waver. Plus, you might even have some friends who are trying to save too.
- Review your progress. Check periodically if your plan is working and if you’re headed to your goal or if you need to adjust. Even a peek at the bank balance you’ve built can provide a huge confidence boost.
- Check with your bank. Your bank might be able to help you manage your accounts. You could set up an automatic savings plan that takes money from your checking to deposit to your savings. Or a bank could offer accounts with a high APY with compound interest to help your money earn more money while you save.
What is a savings plan?
A savings plan is the process of creating a financial goal — whether it’s starting an emergency fund, buying a house or going on vacation — and outlining how you’ll save enough money to make it a reality. With a savings plan in place, you nail down exactly how you’ll save enough money to reach your goals.
Bottom line
Keep your eye on the prize when it comes to savings. Regardless of what your goals are, remembering why you developed a savings plan in the first place will help you stay on track. Compare savings accounts to find the best way to save your money.
Frequently asked questions
Picture: Shutterstock
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