The crowd roars.
The runner has crossed the finish time in record time.
But long before that line was crossed, a plan was made. Goals were set, and a training routine was put into place.
All success starts with a plan and then finishes with following through and taking action. Reaching a financial goal is no different.
Saving money isn’t hard. Just like running is putting one step in front of the other, saving is just putting aside one dollar after the other.
In fact, saving money is waaay easier than winning a marathon. You don’t need to train or practice, you can set your savings plan on autopilot while you focus on living life now.
In order to create a savings plan, you need to clarify what your financial goals are and calculate how much you need to put aside every payday to reach those goals. Automate your savings and you’re set for success!
5 steps to creating a winning savings plan
1. Decide why you’re saving and what you’re saving for
It’s essential for success to have a specific goal to work towards.
For the runner, the goal is to win the race. For you it might be a holiday, a deposit on a house or an emergency fund.
A specific goal will keep you motivated by giving you a good reason to keep saving when you don’t feel like it. Having a specific goal will also give you a destination and sense of satisfaction at having ‘arrived’ when you’ve saved the required amount.
An example of a specific savings goals might be to save $5,000 towards a car in 12 months.
2. Work out how much you need to save
A runner will break their goals down into small steps, aiming for each new milestone before taking on the next.
To break your savings goal down into small steps, divide your goal (in this case $5,000) by the number of paydays until your end date.
So for our goal, assuming we get paid fortnightly, we want to save $193 each payday to reach our goal within the 12 months ($193 x 26).
3. Work out how much you can save
What if you realise you can’t afford to meet your goals in the timeframe you want. Your options are to either tighten your budget to reach your goal or adjust your goal timeframe.
Use online savings calculator to work out how long it will take to reach your financial goal, given how much you can realistically save.
Why use an online calculator? Because it will include interest. Compounding interest is a powerful force that can help boost your savings.
Below is a table from the Money Smart Website that shows exactly how much you would have to save per month to reach a savings goal in a given amount of time at a given interest rate. So as per the example, if you want to save $10,000 in 2 years at 3.2% interest, you would have to be saving $404 per month.
Don’t let the fact that you aren’t saving as much as you would want stop you from saving at all. Don’t wait until you’ve got more money to start saving otherwise you may never start. Every little bit counts.
3. Commit, automate and pay yourself first
Once you’ve decided on a savings amount, automate your savings plan by setting up an automatic transfer to your savings account every pay day. That way, you don’t see the cash and you don’t miss what you don’t see.
4. Pay yourself last
Don’t just pay yourself first, pay yourself last as well.
At the end of the pay cycle, round up any spare cash that miraculously avoided being spent, and transfer those leftover funds into your savings account.
5. Every little bit counts
A winning savings plan is essential for success. Set yours up today and take out the gold on your next financial goal.
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.