Savings Plan Tips

 How to Start

    At some point in everyones life we all save for something. Whether we are 11 years old and collect our weekly allowance for that new video game or we are 27 years old looking to save for a down payment for a house. Having a savings plan is critical as we grow older and seek larger and more essential purchases. This page describes how to get your foot off the ground when creating a savings plan, creating a goal, and following through with your goals.

1.  Sit. Think. Record.

    One of the easiest steps most will look over is creating a list of their current expenses. Humans are naturally good visualizers and writing down all monthly purchases and organizing them into a list will help one visualize and realize where most of your money is going. The easiest way I found to determine where to cut down on expenses is create to a 2 column chart labeled as such:                                                                        

Necessary	Non-Necessary
($1200) Mortgage/Rent	Starbucks ($60)
($65) Gas	Takeout ($50)
($300) Utilities	Large Phone Bill ($100)
Total:      $1565	Total:    $210

This is jut a small example of somethings that should be on the list. No, its not necessary to have a $6 Caramel Macchiato every morning from Starbucks. 10 times cheaper to make a cup of coffee at home. Neither is having an outrageouly large cell phone bill if your single. Boost Mobile and Metro by T-Mobile have great plans that fall just under $35/month.

After you have constructed your list and totaled up the expenses for both columns, look at the difference in prices. Are you spending too much on some of your Non-Necessary items? Do you think you can cut down on something? You can start to realize how much money you can possibly be saving if you always kept track and recorded every single expense.

2. What's your Target?

    Now that you have organized your expenses its time to see what to do with this cash you're going to be saving. At this point you have fully committed to cut down on expenses and start saving for the better. Its fairly easy to spend money without having an initial goal in mind. Whether your saving up for a down-payment on a Car/House or that 5 day cruise with the family, having a target to focus on is a must. 

You must ask yourself "Is my target long term or short term?". Again, you can visualize your target by making a list as Ive done below.

Short Term	Long Term
Down Payment on Car	Down Payment on House
Dream Vacation	Starting a Business
New House appliances	Getting Rid of Debt
Wedding	Child Education
Minor Repairs/Home Improvements	Retirement

A good time frame for each term is to ensure that your short term goal can be achieved at least within a year, and long term goals can range from 2-5 years. Getting rid of some of your short term goals first will definitely give you the confidence that your savings tactics work. As for long terms goals these might be a little more complicated and require opening an account of some sort. Such as Retirement (IRA) or an Education Account (529).

3. Fight the Temptation!

        Its hard for some people not to spend some of their cash when they initially start saving. As soon as some start to have a couple hundred dollars saved up its all of a sudden spending season. You start to say things like "Hmm, I think I can spend a little on some IHOP right now" or "That coat in Old Navy seems pretty lonely", and completely forget about your goal. Small but powerful temptation to deal with, but there are someways to help fight it and keep that cash out of your hands while you save. 

Whether your saving for the long or short term here is a list of suggestions on how to store that cash before you start to give in.

Short Term

Create a Savings Account: Credit Unions tend to have better APY than Retail banks like Chase or Bank of America.

Certificate of Deposit (CD): Savings account with a fixed amount of money, and time period that will gain interest when redeemed. Example: A $2000 CD for 3 years at a 5.2% interest rate per year will give you roughly $335.3 at the end of the 3 years.

Money Market Account: A savings account that will have some similarities to that of a checking, as a debit card. Interest rates for these accounts tend to float around 0.06% to 0.16%.

 

Long Term

Retirement Account: Never too late to open up a IRA or a 401k if offered by your employer.

Education Account: Opening what is known as a 529 is an account for future education costs. Sponsored by states and agencies, these accounts have tax-advantages and are perfect for putting cash away for your children.

Investments: You can invest your cash into things like Stocks, Bonds, Securities, and more. Though this route tends to have a bit more risk involved the returns can be quite gratifying.

 

These are some of the more secure ways of storing cash other than putting it under your mattress. Before opening up any new account, shop around and see which institution provides the best service and interest rates. Willingly storing your money away can help get rid of those spending tendencies and step-by-step get you towards your target.

4. Consistency

    The most difficult part while saving is being consistent until your first goal is reached and to follow through until your list is checked off. Saying "I am going to start saving" is easier said than done and you may follow though for the first couple months or so, but there are things that always pull us off course. Temptation to spend the newly saved cash, Not wanting to save because the goal doesn't seem feasible, or the life style change of "cutting back" can be overbearing and difficult to ignore. There will always be those bumps that will take us off the path of consistency and here are some tips that help me push through:

• Isolate your focus to 1 goal first. (Having many at first might be overwhelming)

• Incremental Improvement. (Start small. Save $1... then $3...then $5...and so on)

• JUST SAY NO! (for some people this is enough)

Even if you give in or get off track from your goals remember we are all human and you must learn to forgive yourself and know that you can start again.

Do you agree? Have a more efficent way to create a savings plan? Let me know in the comments below.

-Jose Hernandez