How To Develop A Savings Plan in 3 Easy Steps

Welcome back! We’re continuing our series about the “7 Rules of Managing Your Money.” Today’s post is on rule number two:

Rule #2: Develop a Savings Plan.

Solomon, one of the wealthiest and wisest men to ever live, said “The wise man saves for the future, but the foolish man spends whatever he gets.” (Proverbs 21:20)

For much of my life I have been the foolish man in this verse. I used to think my spiritual gift was spending money. But learning the wisdom of a saving plan has turned this discipline into a delight. If you desire financial freedom, you must develop a savings plan.

Saving is simple, so developing a savings plan should be simple too. We’ve broken down the process into three easy steps.

       Step 1: Make a List of Your Short and Long Term Savings Goals
       Step 2: Determine the Amount & Frequency of Your Savings
       Step 3: Organize Your Budget & Your Bank and Implement

Step One: Make a List of Your Short & Long Term Savings Goals

Short Term Goals: This is for all non-monthly expenses for which you need to be saving, such as car insurance, maintenance items, gifts (birthdays/Christmas), travel, and even an emergency fund.

Let’s say you pay $600 a year in car insurance. If you don’t plan for this by saving $50 a month, this instantly becomes an emergency when it’s time to renew (where’d we hide the credit cards?).

The same is true for maintenance items in your home such as the air conditioning and appliances. Everything in your home has an expected lifetime, so if your refrigerator cost $1200 and has an expected lifetime of ten years, then every month you need to be saving $10 for a new refrigerator. 

For a budget to work it has to be SIMPLE; we would never recommend a separate line item in your budget for every appliance. Instead, have one line item for Home Maintenance and one line item for Vehicle Maintenance and save $50 a month towards each.

Long Term Goals: This is for big ticket items, such as a new house, car, college, and retirement. 

Saving for a car or home is pretty straightforward. Determine the cost of the item you want, set a “purchase date,” and do the math to determine how much you need to save each month to reach that goal. So if I want a $25,000 car five years from now, then I need to start saving $416 each month to reach that goal.

Retirement is a little more complicated. A simple rule of thumb is to save 10% – 15% of your income towards retirement. However, there are dozens of variables, such as your age, your income, what type of account to save the money in, etc. We recommend meeting with a certified financial planner to determine the best strategy for your specific situation.

Take Action (30-60 minutes):

It’s time to take action. Sit down with your spouse and work through the following two action points: 

  • Review your budget and make sure you have specific line items for your short term goals, such as home maintenance and car insurance.
  • Make a list of all of your long term goals, complete with purchase price and date, and the monthly savings required to meet those goals.

Stay tuned for steps two and three. Sign up for our weekly newsletter with links to all of our posts!

Committed to your success,

-Wesley

Comments: How have you created unneeded emergencies for yourself by not saving for short term goals?  What long term goal are you currently saving up for?

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4 Responses to “How To Develop A Savings Plan in 3 Easy Steps”

  1. Cassi Says:

    I’ve been recently looking into saving money for college, and I completely forgot about the fact that I will have little “Short Term” items that will suck my money, like book, meals, and soon, money will be needed just to apply to colleges. Fun. i will be using this to help me start saving because this is overwhelming amount of money required from me.

    Reply

    • Wesley Says:

      Hi Cassi! IN part two, we talk about how to setup bank accounts to fit your different savings needs. We have one specifically set up for the short term savings stuff. Otherwise it will sit in your checking account and it tends to get spent on other things before you need it. – Wesley

      Reply

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