To most people, the hardest part about starting a savings plan is getting started. It can be difficult trying to come up with simple strategies that would help you reduce expenses and save money. However, once you get started, it is only a matter of time before you have saved enough to get you started on your financial goals.
If after taking a look at your finances, you feel that the time is right to set up a savings plan, here are 5 important points that would help you get started.
- Keep track of your expenses –
Before you can start to save money, you have to first figure out where it is going to. Very few people bother to keep track of their expenses but the truth is that if you put your mind to it, you can account for every single cent you spend. You can use spreadsheets, personal finance apps, or pen and paper to keep track of where your money is going. Your credit card provider typically sends you a summary of the transactions charged to your credit card every month. You can also use this summary to pinpoint areas of excesses.
- Always have a spend limit –
Another important step towards a successful savings plan is to create a spend limit that you will not go over no matter what happens. Every aspect of your monthly budget should fall within the limit you have set for yourself; this will help you avoid overspending. While there is no rule of thumb of how much you should set your expense at, it is advisable to set your spend limit between 70 and 80 percent of your monthly income. This way you will have enough left over to save. Ensure that you factor in regular expenses such as car maintenance and energy bills.
- Compare credit options –
Creating a successful savings plan may involve exploring other credit options. If you travel out of the country a lot, either for business or holiday, you will find out that you pay a lot of charges for foreign transactions and purchases. This can amount to huge savings that can be channeled towards meeting your financial goal. You may have to consider searching for a better credit card deal, such as one that allows you to make interest free international transactions or one with a smaller interest rate.
- Use automated savings –
Automated savings make it possible for you to move money into your savings account whether you want to or not. This is the same system as automated tax debited from your paycheck by the government. While no one likes having the government in their pockets, it makes for a very good system. You simply set an automatic transfer from your current account or the account where your income comes into to your savings account. This way, the amount of money you set will be transferred every month.
- Create an emergency fund –
Most people fail with their savings plan because they fail to create an emergency fund. When an emergency occurs, they are forced to dip into their savings. A good idea is to have a separate account where you transfer small amounts of money every month. This is your emergency fund and should typically come out of the 20% remaining after expenses in step 2 above. In the event of an emergency, you will not need to dip into your savings, but take from your emergency fund to solve whatever problem you are facing.