Six Steps to Starting a Savings Plan
Fight Back – Start a Savings Plan
According to a recent survey of 1,000 Americans more than 18 years old, 22 percent of Americans, or one out of every five, have less than $100 in savings to cover emergency expenses. Almost half of Americans have less than $800 in cash stowed away for emergencies.
Too little money in the bank means you may not be financially prepared to pay for unexpected expenses such as a car breakdown or a home repair, or worse major issues such as a job loss or a health setback. These issues can prove devastating if you do not have a savings fund. The lack of a savings plan can leave you unable to afford non-necessities and recreational expenses like vacations, date nights or the bridesmaid dress for your best friend’s wedding. Yet, it can be very hard to save money, especially if you are already living paycheck to paycheck.
The key to getting out of this situation and to being able to save for life’s surprises or that rainy day activity is to make a plan and implement it. It may never seem like a good time to begin putting money aside, but everyone can start small and build a savings account over time.
Six Steps to Starting a Savings Plan
If you are ready to get your finances under control and start saving, here are six steps to get you started:
1. Set up a budget. First, get your expenses under control so you have money to save. When you establish a budget, you should include all of your fixed and irregular expenses. If your expenses exceed your income, then you should make cuts in categories that can be adjusted until you have a little cash left over. Consider taking on a second job.
2. Set savings goals. Consider what you are saving for and how much you want to save to accomplish your goals. Typically, saving for an emergency fund and for retirement should be top priorities. Most experts recommend setting aside 15 to 20 percent of your income for retirement. While this sounds like a lot, investment vehicles such as 401Ks and IRAs that let you invest with pre-tax money can make it easier. You should also set a goal of saving three to six months of living expenses in an emergency fund.
3. Determine how much you can devote to your savings goals each month. Think about how much extra money you have left over each month as well as where your saving priorities are. In many cases, it is better to start small with your savings amounts so that you can adjust to the change in your spending.
4. Open one or more savings and retirement accounts. You can establish a different savings account to cater to each of your short and long term goals, such as one account for your emergency fund and another for fun activities. Then you will be better able to monitor your progress with each of your saving goals. You should never touch the money in your designated savings accounts except for the purpose you have the money set aside for (so no raiding the emergency fund for vacations).
5. Make your saving automatic. Once you have determined how much to save towards each goal each month, you should automate the process so that you don’t have to always make the responsible choice every time you get paid. If you make a commitment to saving, set up direct deposit or auto debits from your bank account into your savings account and retirement funds. That waymyou won’t have to think about it and the money will always go where it should.
6. Gradually increase how much you save. As you get used to living on a little less because you are putting cash aside, you can gradually increase the amount that you are saving. You can also choose to save all raises and bonus money since you won’t miss the extra cash if you never get used to spending it in the first place.
By choosing to follow these basic steps, in the same way our parents, and grandparents used these time tested strategies, you should be able to be successful and create a savings plan that works for you and allows you to build a healthy nest egg over time.
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