Let’s talk about how a savings plan works.YPFG thinks it’s not at all difficult, and you definitely should consider it.

What is a savings plan?

 A savings plan is a layout for achieving your financial goals. It may include saving for a particular object, asset, or event, toward emergencies, or planning for retirement.

Saving money is essential to achieving both short and long-term financial goals as it is a great method for amassing money in order to reach those goals. It should enumerate the goals in question and the steps needed to reach them. Such goals may include:

• Wedding arrangements
• Purchasing a vehicle
• Emergency fund savings
• College planning
• Buying a home
• Home repairs or improvements
• Vacation plans
• Retirement savings

When trying to create a personal savings plan, it is important to note that the types of financial goals you include in a savings plan will depend on your individual financial situation. Some goals aren’t realistic when you consider your earnings and expenses.

Your savings plan also doesn’t have to be complicated. Here is a step-by-step guide YPFG thinks would help make the process easier.

Step 1: START WITH A FINANCIAL NETWORTH ANALYSIS

A financial net worth is simply a list of your liquid assets and liabilities. This will help you know where you stand financially and can help you determine your starting point for shaping a savings plan. 

Your assets don’t necessarily have to be something ‘hooge’. They could include:

• Cash
• Checking account
• Savings account
• Money market account
• Certificate of deposit (CD)
• Individual retirement account (IRA)
• Health savings account (HSA)
• Brokerage account

 

NOTE that these are assets you could tap into for cash fairly quickly. You may also have other assets that are less liquid, such as vehicles or homes.

Liabilities in your care could include:

• Credit card debt
• Student loan
• Car loan
• Mortgage
• Business loan
• Personal loan
• Medical bills

Subtracting your total liabilities from your total assets will give you your net worth. 

Step 2: ESTABLISH YOUR SAVINGS GOALS

Determine and be realistic about your goals, whether short-term or long-term, before including them in your savings plan. Short-term goals are things you need to save money for in the near term. For example, if your priority at that moment is to save for a particular emergency. 

Long-term goals, on the other hand, do not require immediate cash. Retirement and college are two quick examples. In terms of the amount saved, long-term goals may be larger than short-term goals, but you have a longer time frame in which to execute your savings plan.

Step 3: HOW MUCH DO I ALLOCATE TO EACH GOAL? 

A savings plan only works when you are committed to it and have money to save each month. If you’re not a regular budgeter, you may need to first add up your income and subtract your expenses to calculate how much you can realistically afford to save each month.

Step 4: WHERE DO YOU KEEP YOUR SAVINGS?

When you have your goals in mind, you can think about where you want to keep the funds. Your options include:

• A Savings account
• A Money market account
• A tax-advantaged account
• An Investment account

The option you choose can depend on the goal. For example, if you’re saving for emergencies, then your money needs to be easily accessible. At the same time, you may want to earn a high rate of interest on your savings. Therefore, a high-yield savings account could be the best option.

What makes a good savings plan?

• Specificity
• Measurability
• Achievability
• Realisticity 
• Must be time-bound

Remember, every savings plan is different based on what you hope to achieve with your money, how long you have to save, and how much you can afford to commit to savings.

Need help with this? YPFG offers that and a lot more. Reach out to us via our email address yourpersonalfinancegirl@gmail.com to get started.