Not many of us can purchase whatever we want whenever we want without considering how we are going to pay for it. Most people are limited to their income, and after covering basic necessities such as food and shelter, not much is left over for large purchases. Credit cards and loans do provide an opportunity to increase your purchasing power, but these options can lead to detrimental outcomes. Going into debt for items you can acquire by saving is robbing your future self to satisfy your impatience. Creating a savings plan will free you from unnecessary debt, provide peace of mind, and allow you a better chance of acquiring items or meeting goals your disposable income is not sufficient enough to accomplish. These preceding steps will help prepare you to take on the task of creating your own savings plan.

  1. What Are You Saving For?

The first step in creating a savings plan is to know what you are saving for. Many people find it difficult to save because they do not know what to save for. If you have never created a savings plan before, it can be difficult to know what to save for. You should know that you can save for anything. Keep in mind we do not have unlimited money, so whatever we are saving for, it is because it exceeds our disposable income. There are individuals who choose to be irresponsible by using their money to take care of wants before needs–this is a recipe for disaster.

For example, if you have a disposable income of $45 after each pay period and you would like to buy a pair of socks for $12, you would not need to create a savings plan to buy a pair of $12 socks. Now, if you have the same disposable income and desire a computer that costs $1200, then you will definitely need to create a savings plan.

Ask yourself these questions: What don’t you have and would like to have? What are your long-term and short-term goals, and what role does money play in them? If you still do not know what to save for, here are some examples of possible saving goals a person may have in their lifetime:

  • Emergency Savings – Three to six months of living expenses in the case of a possible job termination.
  • Wants Savings         – These are desires that are not needs, but their cost exceeds your disposable income. ~.
  • Education Savings   – Saving for kids’ education or the possibility of furthering your education or training.
  • Retirement Savings – The nest egg you have accumulated over years of working when you decide not to work anymore.
  • Vacation Savings     – Savings set aside for vacation and travel.

These examples can help you get started with your own savings plan. You may be familiar with one of the above savings plans, but during a person’s life, they will need to be familiar with all of the different savings plans.

  1. Determining Cost

If knowing what you are saving for is the destination of a road trip, then the cost is how much gas you will need to get there. The second step in creating a savings plan is to determine the cost of what you are saving for. In this step you will need to research the cost of what you’re saving for. For simple items such as a pair of socks or a gaming console, you will need to visit a store or visit an online store to compare more items in a faster time. For more complex items and endeavors such as retirement, education, and even the purchase of a new car, your research will require more complexity. 

  1. Assess Current Financial Position

The third step in creating a savings plan is to assess your current financial position. Depending on where you are in your financial life, this step can be drastically different for each individual. Do you have an income? Do you have disposable income? Is what you’re saving for a necessity, or are there more urgent financial matters that need to be tended to?

  1. Determining Duration 

In your current position, how long will it take to meet your savings goal? Forecasting is a useful tool to use to determine when you will meet your savings goal. Say you’re saving up for a used car that costs $10,000. You have determined from the previous step that you are able to save $250 per paycheck, which is $500 per month because you get paid twice per month. Knowing your savings goal of $10,000 and the amount you can save per pay period ($250) and per month ($500), you can determine how long it will take for you to meet your goal. In this example, if you divide $10,000 by $250, you will find that it would take you 40 pay periods, or $10,000 divided by $500, which is 20 months. With this information, you can determine if this is an appropriate time for you.

Also, another useful tool that is useful for determining duration is estimation. Estimation is a guess based on previous information. If you’re unemployed, you can estimate how long it will take for you to find work based on past experience or the experience of your peers. Estimation, along with forecasting, gives you the power to run hypothetical numbers. What if you get a raise, or what if you sell an item? All of that information can help you determine how long it will take for you to meet your savings goal. 

  1. Make Adjustments

With the information you gather from the previous steps, here is where you determine if there are any adjustments you can make to your financial life to meet your savings goal. This could mean looking for work if you are unemployed or finding a new job that pays more. It could also mean getting a temporary second job until you meet your savings goal. You can also cut expenses if they are spending you deem unnecessary. You are taking the information that you have gathered from assessing your situation and determining duration and putting it into action.

  1. Write Your Plan Down. 

Enough emphasis can not be stressed on how important it is to write any plan down. Also, have a centralized location for writing down your plan. You can write your plan down on your phone, laptop, a sheet of paper, or a journal. Do not make a habit of writing your plans down in several different places. It is a nightmare when you’re looking for a plan you have created months earlier but you can not remember where you have it.

  1. Reassess Your Savings Plan In A Timely Manner

Creating a savings plan can be a difficult first step in meeting your financial goals, but the work is not done there. You must also reassess your savings plan every so often to ensure that you are on track to reaching your goals. Once per month is a sufficient period to reevaluate your savings plan. Also, if there are any events that change your situation, such as loss of income, this is a good time to reassess your savings plan. During the scheduled assessment of your savings plan, you can see if there are adjustments that need to be made. Don’t be surprised if you are once again presented with the opportunity to make more adjustments. Life is unpredictable and dynamic, so your plan will also need to be updated periodically to keep up with the uncertainty of life.

Make a habit of dating any plan you have created. Dating your plans and dating any changes you have made to your plan will help you keep better track of the information. Nothing is more frustrating than trying to recall a date that hasn’t been written down. Making a date of any new changes going forward in your plan can help you not repeat methods that you had already tried. Documenting when you have added new information to your savings plan can have the benefit of tracking your progress. This will inform you of how close you are to meeting your goals. For example, if you created a savings plan three months ago and now decided to increase the amount of money you are planning to save, it is helpful to date when you make this change and when you are planning to execute the increase in savings.

Final Thought

Creating a savings plan can be a daunting task if this is your first time. Not to worry, everyone has to start somewhere. Taking this step will have major benefits over the financial life of a person. Do not quit if sticking to a plan becomes difficult. Stick with it and remember consistency reaps higher dividends than perfection. Also, don’t be afraid to ask for help. In any friend group or family, there is at least one person that is savvy at something. That could be money, technology, fitness, and the list goes on. Ask these people for help. Ask them one tip they have for saving and try to adopt it if you can.