How To Develop A Savings Plan in 3 Easy Steps: Step 2

Savings.”

So boring right?

That word is not nearly as fun to say as spending. Yet true wealth does not come from spending, but from saving and investing.

Today, we’re back on the savings wagon, and the next stop on our “How to Develop a Savings Plan” journey is Step #2.

Step Two: Determine the Amount & Frequency of Your Savings

Once you have set your short term and long term goals (see Step One), you have to determine how much you will save and how often you will save.

1. Determine the Amount:

Researchers at USC have found that how you think determines how you save.

They found that abstract thinkers, who focus on the “why,” are more successful at saving when they have a savings goal with a specific amount (such as $200,000 for a house). The house then becomes the answer when the abstract thinker asks “why am I saving this money?” and it motivates them to save.

Concrete thinkers tend to get overwhelmed when setting a goal of a specific dollar amount. They focus on the “how” and get discouraged when they don’t know all the details of how they are going to save up for a specific amount. Concrete thinkers do better with simply saving as much as possible, rather than a specific dollar amount.

My suggestion would be for abstract thinkers to pick a dollar amount to save towards, and for abstract thinkers to pick a specific percentage of their income to save each month.

However, you have to do what works for you. For example, I’m an abstract thinker, yet Beth and I found that what works best for us is to save a specific percentage each month. I am still motivated to do so because I have a clear picture of why we are saving.

If you’ve never really saved before, or your monthly budget is very tight, we suggest starting out by saving 10% of every dollar that comes in. We’ll explain where to save it in our next post (Part Three).

2. Determine the Frequency:

How often you save will obviously have an impact on how much you will save. Our thought on this is that you should start saving a percentage of every dollar that comes in…immediately.

You have probably heard the phrase “pay yourself first.” Because of my Christian faith, I believe in paying yourself second, as giving back needs to be first. Even when we had over $100,000 of personal debt, we continued to tithe first on our gross income. We never once missed a payment on anything.

So when we receive income, giving is first, then we move a specific percentage into various savings accounts set-up for short term and long term savings goals. Then with the leftover we set our monthly budget allowances.

If you put your expenses first, then there’s never anything left for giving or saving.

Take Action (15 minutes):

It’s time to take action. Discuss the following with your spouse:
• Are you an Abstract thinker (“why?”) or a Concrete thinker (“how?)”?
• Should you set savings goals using a percentage of your income or a set dollar amount?
• Discuss when you will start saving. Immediately? After the debt is gone?

Stay tuned for step three. The easiest way to do this is to sign up for our newsletter. We send out one newsletter each week with links to that week’s posts.

Committed to your success,

-Wesley

Question: What are your thoughts on paying yourself first?

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