We all know what savings are but are we good at meeting our savings goals? Or, are you like anyone else and life gets in the way and somehow your savings don’t accumulate like they should? Here are ways you can alter your savings plan so you can achieve your goals:
Re-evaluate your budget
Do you have a budget? If not, make one and follow it to a tee! A budget will tell you if you need to adjust your lifestyle. In other words, are you spending less than you make and allocating money towards the important things such as paying off debt, a house fund, college for the kids, etc… Remember, “beware of little expenses; a small leak will sink a great ship” (Benjamin Franklin was a smart guy).
Refer to my post on four of the top reasons you can’t stick to your budget to give you some key budgeting tips. I prefer to use an online budgeting software to limit the time I put into it. I use Everydollar Plus because it’s only $8/month and all my checking account transactions are automatically loaded into my budget. The only thing you have to do on Plus is to move them to the correct expense category. If you don’t want to pay, you can get the free version of Everydollar and you would have to key in your expenses that hit your checking account. Comparing your actual expenses against your budget is extremely important! This is how you hold yourself accountable and alter your spending behavior (and thus savings behavior). 🙂
Pay yourself first
After all, you’ve worked hard for this money. Do your best to get your retirement savings up to 15% even if it means you have to adjust your lifestyle. Most employers offer a pre-tax retirement plan such as a 401(k), 403(b) or a 457 that incur penalties if you withdraw the money before age 59 1/2. This is a GOOD thing so you’re not tempted to withdraw it before then! If your company doesn’t offer a plan, you need to open a Roth IRA as soon as possible. The key to retirement saving is to have your money automatically withdrawn from your paycheck into your investment accounts before you even see it. Thus, the money you bring home (net pay) is the amount you should include as “income” in your budget.
Make sure you have a financial plan that ties to your budget
If your budget is realistic, you should be able to follow it. If you can follow your budget then your financial plan is achievable as well. If you keep your dreams in mind, such as a dream vacation or new house, it helps you stick to your budget/financial plan. One of the biggest problems in saving and budgeting is discipline. Our financial destiny is determined by our spending and saving behavior.
How to create a financial plan:
Decide what your goals are and the amount of money needed for each. Your financial plan should include paying off debt, having an emergency fund and, if you have kids, investing for college. You can set as many goals as you’d like.
Then you set a schedule by dividing the total goal amount by the amount you’re able to put aside each pay period. This will tell you how many pay periods it’ll take to reach that goal. It helps you stick to your savings plan when you have an end date in mind. You can then tweak the plan based on priority of what goals you would like to achieve first. Be vigilant by treating your savings contributions just like any other expense.
Excel has an easy tool called the Savings Estimator if you’re not the best with spreadsheets. You plug in the start and end dates and dollar amount and it’ll tell you how much to save each pay period (weekly, bi-weekly, monthly). You can then change the end date to get within your budgeted savings amount for that particular goal.
Open a savings account at a Credit Union (THIS ONE IS CRUCIAL)
Do NOT get an ATM card for this account. In addition, it’s best to go to a credit union that’s not in your neighborhood (as far away as possible). This may sound silly but when you get the urge to blow your savings with an impulse buy, you won’t be able to easily access this money and it’ll give you more time to think about it. A credit union is preferable because hours at a credit union are even more limited than a bank. If you don’t have an ATM card, you can’t withdraw money unless you drive to the credit union during open hours.
How does a credit union differ from a bank?
A credit union acts just like a bank, providing all of the same services: checking, savings, mortgage lending, auto loans and business loans. The one distinguishing factor is that credit unions are nonprofit institutions.
“The big difference is that they are not beholden to shareholders, so when they make a profit, they don’t give that to shareholders. Instead, credit unions return that profit to members in the form of lower fees and better service.
Make your savings automatic (also CRUCIAL)
This is a similar concept to paying yourself first for retirement savings. However, this is taking a portion of your after tax money from your paycheck and having it directly deposited into your credit union savings account. This way you’re not responsible for making sure the money gets to the right account and thus your savings accumulates without a lot of work and before you can spend it! This also makes budgeting even easier because now take-home pay income is used 100% for household expenses since your savings have all been taken care of. You’ve already paid yourself and set aside money for your savings goals on your financial plan.
Squeeze the balloon
Know your savings “personality.” Do you tend to save a lot or are you hesitant to save too much? Do you have good intentions but then end up using your savings for other things? I’m a natural saver and have a few different accounts for various goals. Honestly, some of those accounts are at banks but it works for me. I do have a credit union account which is used for non-recurring extraneous items such as vacation spending money and car purchases.
I recently started using a new service called Digit for what I call “squeezing the balloon.” Digit is a service that checks your spending habits and removes a few dollars from your checking account every few days, if you can afford it. There are no hidden fees and it has bank level security (there are no fees because Digit is earning interest off your money). I don’t necessarily believe in saving money without intention as it should be done with your financial plan via automatic and planned deposits. However, Digit saves more money for me above and beyond my normal savings plan and I have found it to be more fun than anything. Plus, I wanted to test this new financial tool out as any financial nerd would! 🙂 It’s amazing how much little bits of saving can add up! Same goes for expenses, right 🙁
All in all, consider looking at your savings habits and determine if you’re achieving your goals. If you’re like most people, you don’t save as much as you’d like. Or you don’t save at all. Americans spend more than we earn and are continuing to accumulate debt. Consider that the national personal savings rate has dipped to the lowest point since the Great Depression! Let’s change this behavior and take control of our financial future. It’s amazing the load lifted off your shoulders when you’re not worried about how you’re going to pay for your kids college or enjoy retirement.