First of all it’s important that you realise that you are not alone if you finding it hard to set up and continue with a savings plan. The challenge of being committed long term to a savings plan is one that most people struggle with on a continuing basis. Not many people have any difficulty in realising that it is the sensible thing to do so that you have funds in the bank for emergencies and so on, but the actual practice of making it happen is another different aspect altogether.
Have you ever felt the relief of saving for a number of months and know that you have money in the bank for the emergency? The psychological affect is really quite incredible, you can feel empowered, free of many worries and if you have struggled for some time, you can almost feel indestructible. Being free of money worries is a fantastic goal to aim for and here are some ideas for you to ponder and some tips for you to instigate.
To start with you need to understand why you should aim to put yourself in a good strong financial situation.
By having money in the bank you can have peace of mind knowing that you can meet any of the following financial situations:
- Unexpected expenses – they always seem to crop up at the most unexpected and inconvenient times adding immense stress to your life
- Pay cash for your purchase – so many people just keep putting things on credit cards without facing the fact that they do eventually have to be paid for – a budget will help control this expenditure
- Accumulate money for the more expensive but enjoyable things in life like a new car, holidays, children’s education and weddings – without a savings plan your money will just fritter away and you won’t ever have that new car
- Retirement – this is a must with the Government scrapping the Old Age Pension in years to come
Plan the Process for your Savings Plan
Now that you understand what the benefits are going to be of having healthy savings account you can get excited about owing that new car or going on that holiday, or whatever and put in place the following steps to achieve your savings goals.
What needs to happen is that there should be a budget set up to incorporate all your incomings and outgoings.
We will go through the steps one by one as each and every step is critical to the final result. Just like riding a horse, you don’t just jump on and hope you will stay there. You have to understand the horse, be prepared with saddle and bridle, befriend the horse, feed the horse and then get the results.
- Work on a time frame. As most bills come in monthly we will work on a month and then you can break that down to weekly payments if that is easier. If you want to break it down to a weekly budget, divide a month by 4.2 to get a true weekly expense of monthly payments.
- Income. Work out how much net income you have coming in each month (again work on 4.2 if you are multiplying your weekly wage).
- Expenses or outgoings. This is the one most people don’t like addressing, especially if they have a tendency to over-spend. But to really get great results you do need to list everything that you pay out. Start with the list of expenses you have each and every month: mortgage payment (rent), insurances, loan repayments, phone bill, internet expenses, petrol, food and power. Where some people come unstuck is they don’t allow for entertainment. It is very important for the long term success of a budget that you do put in entertainment, clothing, sport, hobbies, hairdresser and other allowances you decide you want to spend money on. List everything. If you don’t have a definite figure, do the best you can to work out a monthly expense on the item concerned. You will find that working it all out on a spreadsheet will be the easiest way to do it.
- Budgeting the balance. If you have less income than expenses you will have to address that, but now at least you know it, you can’t hide from it and that is a good thing. If you have more money coming in than going out you have excess money with which you can use to put towards a savings plan. If you do have excess you can decide from this amount how much you want to allocate to a savings account each month or week.
- Keep records. Oh, yes, this is another one a lot of people hate doing. But if you do not know how much you are spending, how can you keep a strict budget. Part of the habit that you should get into is to have a particular time every week that you sit down and write all your expenses up. Monday night is good because if you have lashed out over the weekend it will pull you into line.
One of the actions which cause a lot of budgets to crash is to make them too tight. By not allowing enough for ‘free spending’ or ‘treats’ people get uptight and feel that they are only living to work, not working to live. Then before you know it the whole budget idea has been scrapped.
Unless you have a pressing goal you are trying to meet, the idea of a budget is to look to the long term. Build a long term habit of saving for the future. It may even mean you have a long term savings account and a short term one for something like a holiday.
Once you start building up your savings account look for ways to put it into high interest earning accounts and gain from compounding interest.