Savings Plan – What is it & Why is it Important?
There may not be many left on earth who haven’t heard about, viewed, or fallen in love with Bruce Banner, the incredible Hulk. In Marvel’s Avengers series, he is instructed multiple times to “unleash the beast” and go into demolition mode… and he does just that!
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With superhuman strength tossing tanks, ripping apart…well… anything…and smashing things becomes possible for the Hulk. As the familiar old adage goes, “the madder the Hulk gets, the stronger he gets” (and the more he destroys).
Similarly, you can unleash the savings beast inside…hulk style, demolishing every expense in the way of your financial goals. Ripping apart the worst expense offenders and tossing unnecessary spending out the window will become possible.
The goal of this article is to unleash your full potential and become a superhuman saver so that you can someday reach your savings goals.
It’s time to get smashing…
What is a Savings Plan
Creating a savings plan may not be something that is talked about often. A savings plan is a plan that works in addition to a budget…it’s connected at the hip and will build on the budgeting efforts that are put in.
The concept is to create specific goals for the future, and then analyze the expenses and start removing or reducing certain items to achieve the goals that have been set.
There are many that group budgeting and saving money together. While they have the same goals, they truly are two separate tasks. Budgeting is about tracking and characterizing every dollar that goes in or out of one’s possession. Saving money, and subsequently a savings plan, is all about analyzing with the intent to remove or reduce problem items from the budget.
So the savings plan is really going to be the vehicle to help save money for everyday life (not retirement…which is another beast by itself).
Now that we have addressed what it is…it will be good to know why it’s important as well.
Why is it Important
Most of us can agree that having some money put away is important. Living within one’s means, and having extra money each month to put away, is a big deal. Having a savings account will help provide financial freedom and peace of mind.
Even though all of us know that savings is important, many of us are not doing it… few know how to truly save! In order to become a Personal Money Manager, one must start by creating a savings plan… so that they can actually save money effectively.
A savings plan will help anyone learn how to save money for a house, school, a car, for traveling or just put some money away for emergencies. This plan can be created for an individual, or tailored to fit a couple or family. This is also a great life skill for kids and teens to learn.
A savings plan can help fix the piggy bank! Learning how to save is a practical money skill that will help anyone feel empowered, knowing the ultimate direction of one’s financial picture.
Create A Savings Plan
Proper money management is all about having a plan in place (a savings plan), and then acting according to that plan. This plan is going to help you unleash the expense destruction side in you. Don’t let this seem like a daunting task; this article will walk through how to create a great savings plan, step by step.
In fact, applying these principles can enable one to go from a Saver to a SUPERSAVER!!
ACTION STEP: Become a SUPERSAVER. Grab a pen and paper, open up a spreadsheet, or download our savings-plan-template.
Step #1 – Have a Budget in Place
Budgeting is the first step to create a savings plan. The previous article talks about how a budget will help to track and characterize every dollar that goes in and out of one’s possession. A budget needs to be in place, or there will be no foundation for saving money.
A house should never be built without a solid foundation, or it will be weak. Having a weak foundation leads to vulnerabilities and future issues later on down the road. Likewise, a savings plan should never be built without a proper budget.
ACTION STEP: Take a moment and pull out your budget. If you haven’t created a budget before, go to the previous article, a step by step guide on budgeting. Once the budget is good to go, move on!
Step #2 – Goal Setting
After putting a budget in place, the next step is to look at the future and set some goals. Use S.M.A.R.T. goals to keep this simple. For those who haven’t heard of S.M.A.R.T. goals, here they are:
- Specific – Create simple, well defined goals. Don’t be vague or generalize the goals. Define exactly what direction the goal should go.
- Measurable –Include specific amounts, dates, or other measures to help know whether or not you have been successful.
- Attainable – Don’t set impossible goals. Be realistic. Make sure you can actually reach the goal that has been set, but don’t go easy! Raise the bar!
- Relevant – Keep the goal aligned with the direction the goal should go.
- Time – Set a deadline. Deadlines are perfect to measure one’s success, cause urgency, and know when to celebrate!
Also, make sure to write down these goals, or it’s really just a wish. In order for goals to be powerful, they need to have all five of the characteristics listed above (plus written down).
Here are some saving goal ideas to consider:
- Save $_____ amount each month or year.
- I will have $_____ on this date _____.
- Save _____% of income each month or year.
- I actually want to save more than I spend by this date _____.
- Save 1, 3, or 6 months or even 1 year of income.
- I will have $_____ dollars to spend on _____ by this date _____.
For those who are saving money each month, make sure to build goals around saving a certain amount each month or year (or for a specific purchase). For those who are currently spending more than they make, make sure to build goals around how to start saving money each month (specifically check out Step #3).
ACTION STEP: Look at your budget and situation. Create a goal, or a few, and write them down. Once you have those goals written down, then move on!
Step #3 – Look at the Expenses
Now that a budget is in place, and the goals have been written down,
naturally the next step is to examine the situation a bit more closely. The next step is to exploit the areas where the biggest changes to the current financial situation can be made.
Here are the two common questions, and subsequently two big areas to address:
- What are easy ways to save money?
- How can I make more money?
While making more money can certainly help anyone’s financial position, the first step is to address the amount of money that is being spent. Saving money isn’t always easy, but it is absolutely possible to change current spending habits to maximize the amount of money that can be saved.
A Great Concept
Here is a concept that has real merit:
It’s not about how much money you MAKE, but rather how much money you SPEND
Based on that concept, we will only be focusing on ways to save money, and not ways to make more money.
Examining one’s expenses is the best way to save money. After adjustments have been made to the expense line of a budget and the outcome is money being saved each month, then it’s time to address how to make more money.
Looking at the expenses can be painful. What needs to happen is a personal inventory session. Sit down, analyze what you are actually spending your money on. Consider which areas can be reduced or removed altogether. This process may end up being a light-bulb experience for you. Use this experience to become better with your money.
Something to Consider
How much money could actually be saved each month by reducing or removing certain items from your budget and lifestyle?
For that matter, how often do all of us spend money on things that don’t need to be purchased, or are strictly bought on impulse? With honest analysis, you will find areas and items that really don’t need to be purchased the next time you step foot in a store.
Proper analysis of the expense line, along with removing and reducing items from the budget will enable you to become a money savings expert!
ACTION STEP: Grab the budget and analyze what you are currently spending money on. Be honest with yourself! Next, write down what you are going to DO to reduce or remove certain items or categories from the budget. Keep your goals in mind and make a plan. Once this has been completed, move on.
Bonus: Here is the Money Saving Tips list. This is the ultimate money saving ideas list with common items in everyone’s budgets that can be removed or reduce.
Step #4 – Avoid Unnecessary Spending
At this point, we have analyzed the expenses within the budget and found ways to reduce or remove certain items in order to achieve the goals that have been created. Awesome job! The last step to a savings plan is to avoid unnecessary spending.
There will be times in the coming days and weeks, where you will want to spend money on unnecessary things. REALITY CHECK… we all want unnecessary things! But just because we want it, doesn’t mean we have to get it. Keep in mind that needs and wants are different.
You have a written savings plan in place now, goals written down, and future dreams in mind. Don’t ruin those plan now! Don’t spend money that shouldn’t be spent!
To combat unnecessary spending, give yourself an allowance. What is an allowance? An allowance is an amount built into the budget for wants (not needs). This number is not set in stone and needs to be tailored to everyone’s personal situation.
At some point or another, all of us will have a situation where we will want to spend money on something that doesn’t fall within our budget. For these item, go ahead and use the allowance! The allowance can empower you to avoid unnecessary spending.
ACTION STEP: Look at the budget that you have created and find an amount to allocate to an allowance fund. Don’t over do this, as you still need to keep within the goals that were just created; however, this will be the “play money” that can be used to help you be strict in other areas of the savings plan.
Act on the Savings Plan
Don’t Just Tape it to the Refrigerator
Now that the savings plan has been created, you need to act according to it! This is not something that is just created, taped it to the refrigerator, and then never looked at again.
Benjamin Franklin once said:
“It is the working man who is the happy man. It is the idle man who is the miserable man.”
How true that is! Don’t be idle! Become a money saver. Start saving money and put it towards enhancing your life.
Everyone has dreams. All of us have things we want to buy or do later on in life. All of us can get there! Anything can be possible, if we are willing to sacrifice for it today.
One of the biggest problems with our current society is that we all want things right now… instant gratification. Collectively, we no longer have patience. That is a principle that we need to learn, especially when dealing with money.
In order to have money to do awesome things later in life, you need to BECOME AN AGGRESSIVE SAVER NOW. Don’t put off till tomorrow what can be done today!
Write out the Savings Plan
Writing out the savings plan is POWERFUL. Put it up where you can see it and think about it OFTEN!
Becoming an aggressive saver will help one to better cope with the surprise events that happen in life. Sometimes things just happen…a major illness accompanied by expensive medical bills, the car dying, or the house needing a new A/C unit.
Those who find that halfway through their goals a surprise event occurs, don’t get discouraged. Pay for what needs to be paid for, then get up and keep running towards the goals that have been created.
Life is a marathon and not a sprint…both are tiring and require a good chunk of effort, but at least with a marathon picking yourself up, working harder, and pushing forward towards the goals are a possibility. It’s a long race, after all.
One day you will get there…you may be exhausted and out of breath at that point, but at least you’ll be dry heaving all over your accomplished goals!! Now how satisfying is that!!
Further Readings – Saving Money
- Club Thrifty – How to save money.
- Top Money Hacks – Differences between needs and wants.
- Centsibly Rich – Money saving tricks.
Final Thoughts on Savings Plan
If you went through this whole article and took the “action steps”, then you just created a simple savings plan! Congratulations! You now know how to start saving money fast. You now have the right plan. The only thing that is left is to put that plan into action and become a superhuman saver.
Unleash the savings beast. Demolish every expense that is in the way of your financial goals.
Learning how to save money is a skill that is needed to financially survive in our world today. Become a Personal Money Manager by creating a savings plan, living true to it, and then being patient as you start to save money each month and year. A savings plan will help you destroy debt, plan for retirement, and get to where you can start investing your money as well.
Managing money is a key life skill that puts YOU in control…and once you have that control, then you truly have POWER OVER LIFE!
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