Do you want to have money in the bank so that when the bills come in, you can pay them straight away, with cash and without stress?
Do you have a specific savings goal that you want to achieve, like go on a holiday or save for a house deposit?
What you need is a savings plan.
Below I’ll outline a savings plan we’ve been using for many years now. It’s simple but highly effective.
The 4 Steps to Creating A Savings Plan
The whole point of creating a savings plan is to stay out of debt and reduce the pain of paying large bills when they crop up.
Putting aside a few dollars each week is a whole load easier than having to suddenly come up with several hundred dollars when a bill falls due.
So let’s get started.
1. What are You Saving For?
Before you can create a savings plan, you need to know what you want to save for and how much you need to save.
Start off by writing a list of what you want to save for. Here’s an example list to give you a few ideas.
Don’t get overwhelmed by the long list – you don’t need to save for everything at once. Think of it as a work in progress. Start with the most important things you need to save for first.
2. How Much do You Need to Save
Next, write down how much you need to save for each item. How much is your electricity bill usually? How much do you need to save for your holiday?
Then put a due date for when you need to save that amount by.
You’ve just made a SMART goal. Your goal is SPECIFIC (you’re saving for a holiday), it’s also MEASURABLE (you can see how far you’ve come by looking in the bank and TIMELY (you know exactly when you’re going to reach your goal.
Is it attainable and realistic? Let’s look and see.
3. Work out How Much You Need to Save Each Payday
In the example, the goal is to save a total of $5,600. There are different time frames for each goal, but that’s ok, we’ll work it out so we can reach each goal in the desired timeframe.
The next step is to calculate how many paydays you get between now and your goals. So if you get paid fortnightly and your goal is 12 months, you’ve got 26 pays to save.
Do this for all your savings goals and add up the total. That’s how much you need to save each payday to reach each goal. In the example below, the total amount to save each fortnightly pay is $287.18.
Are your savings targets attainable? Are they realistic? Can you afford to put aside that much each and every payday?
To work that out, you need to fit your savings plan into your broader budget that includes everyday expenses and debt repayments.
I like to track our savings goals using excel (you can see how I do it here), but this isn’t necessary. Once you’ve calculated and automated the savings plan, you can rest assured knowing your savings are on track. Just remember to update your plan once you’ve reached a goal.
4. Automate Your Savings Plan
Now that you know how much you need to save as part of your savings plan, use online banking to schedule your savings to come out each payday. That way, you don’t have to worry about saving money, it happens automatically. As long as you don’t dip into your savings, you’re guaranteed to reach your goal while you get on with living.
What if You Can’t Afford to Save as Much as You want?
If you can’t save as much as you would like to, remember, any savings are better than no savings at all. Save as much as you can.
You may need to adjust your goal or change the time frame to give yourself longer to save for it.
Or you can use these tips to boost your savings in order to reach your savings goals sooner.
In some instances, we only put aside $2 for certain savings goals. For instance, we don’t have private health cover, so I put aside $2 a pay to cover possible teenage braces etc. in the future. It’s basically self-insurance.
The thing to remember is, over time, that $2 adds up and when you need to use it, you’ll be glad that you put money aside.
Creating a savings plan is a stress-free way to manage your money. You can rest easy knowing you have the cash to pay for future expenses. How good is a holiday if you can come home to no debt!
Melissa Goodwin is a writer and the creator of Frugal and Thriving who has a passion for living frugally and encouraging people to thrive on any budget. The blog is nine years old and is almost like her eldest baby. Prior to being a blogger and mum (but not a mummy blogger), she worked as an accountant doing other people’s budgets, books and tax.