My simple eight point plan to kick start a savings habit
Written by Adon Beddoes on May 08, 2018.
So you know you should be saving but you just haven’t managed to get started yet. It’s a common refrain so I thought I’d put together a step-by-step guide to get you on track. Often the first step is the hardest but time after time I see clients overcome that first hurdle and suddenly a plan is in place and they start to build wealth and reap the benefits of compound interest. It can even become addictive!
Here’s an eight point plan to get started:
1. Record your expenditure
Understanding where your money goes each month is the first step to working out how much you can afford to save each month, especially if right now there is often nothing left by the time the month is over! Over the course of a month note down every penny you spend – whether on big ticket items or minor expenses such as coffees and snacks. You may be surprised at how much gets frittered away on nothing much. Your bank statements can help with this or download an app such as Billguard, Fudget or Mint. When you have a month’s worth of data, split expenditure into categories such as accommodation, bills, groceries, entertainment to get some totals. You’ll find a list of categories here to select those which are relevant to your situation.
2. Start a budget
Now prepare a budget with a realistic amount earmarked for each of your categories, realistic being the operative word if you have any chance of sticking to it! This will help you take control of your finances, plan how you spend your money and limit overspending.
3. Plan to save
From now on, savings will be an important category in your budget. Work out how much you can afford to save each month. A good amount to aim for is 10-15%. That might mean reducing spending in some areas by making cutbacks in non-essential categories such as eating out, entertainment and clothes. Yes, you might have to sacrifice a couple of nights out a month or a new pair of shoes. If you’re serious about saving and worried about how to free up cash to do it there are plenty of ideas online for cutting expenditure.
4. Make saving automatic
Once you have determined the amount you will save each month, set up an automatic transfer of that amount from your current account to a dedicated savings account as soon as you get paid. If the money isn’t accessible you won’t be able to spend it and I promise that after a while you won’t even miss it.
5. Set savings goals
Set some short and long term goals as motivation to stay on track with your savings. Short term goals might be a holiday, a deposit for a car or enough for an emergency fund. On that note, I recommend an emergency fund of six months of expenditure as a key element of a sound financial plan. Longer term goals may be a deposit on a house, an education fund for your child and, a must I’m afraid, a retirement fund.
6. Select canny savings vehicles
If you need to keep money liquid, shop around for the best interest rates on savings accounts although these are still pitiful and will definitely not make you rich. Once you have an ample emergency fund saved in the bank turn your attention to more lucrative options which will make your money work for you. Savings for your longer term goals are definitely best invested in other vehicles such as funds, stocks, bonds or commodities. When you get to this stage in your financial planning you should definitely consult a professional financial adviser who can recommend the products most suited to you based on your goals and your attitude to risk.
In this day and age it really is essential that you at least save for retirement. If you haven’t already got started and would like some help putting a financial plan in place to secure your financial future, please e-mail me at firstname.lastname@example.org. You might not enjoy it but your future self will definitely thank you for it!