Tag Archives: Savings

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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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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The Seven Rules of Managing Your Money

The #1 key to growing wealth is understanding how to manage your money. In the outstanding book, Secrets of the Millionaire Mind, T. Harv Eker states that “the single biggest difference between financial success and financial failure is how well you manage your money. It’s simple: to master money, you must manage money.”

So how well do you manage money? Do you feel lost when thinking about your spending plan, your debt, and your investments? Do you ever catch yourself thinking “where did all my money go?” If so, you need to become a student of money management.

Don’t get overwhelmed, the rules of money management are simple. The problem we have is not in understanding the rules but in following them. We simply aren’t doing the things we know we need to do.

The Seven Rules of Managing Your Money

1. Take a Financial Snapshot: The first step in managing your money is to get an accurate picture of where you are financially. You may not like what you see but this is the first step to change.

2. Develop a Spending Plan: Give a task to every incoming dollar, such as buy food, pay the electric bill, or get rid of debt. Money gets lost when it doesn’t know where to go.

3. Develop a Savings Plan: Here’s where most people fall short. To grow wealth, saving is not optional.

4. Develop a Giving Plan: Want to read a crazy promise found in scripture? Read Malachi 3:10. It’s the ONLY time in scripture where God tells us to test him.

5. Develop an Investment Plan: To quote Eker again, “Rich people have their money work hard for them. Poor people work hard for their money.”

6. Track your Spending Weekly: Wealth is like a road trip, and tracking your spending is the same as keeping the car between the lines. Constantly checking and adjusting.

7. Review your Plans Monthly: This is like checking the map on a long trip, making sure you’re still on the right track.

I’m assuming if you’re reading this that you’re in a place where you are ready to take action and get control of your finances. Today is simply an overview of the seven rules of managing your money, however, stay with us for the next two weeks as we go into detail about each rule and how to take immediate action on each one.

Committed to your success,

-Wesley 

Comments? We love hearing from our readers. Let us know which of the steps you’re working on!

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