How to Set up a Savings Plan You Can Live With

Posted December 12 2014
by PenFed Team
small tree growing out of pile of coins

Putting money into savings can seem like a hardship, like going to the dentist to get your teeth cleaned. But just like getting your teeth cleaned, making a savings plan is important. To start saving, we recommend resetting your expectations: don’t think of savings as a chore, but instead think about what your savings is. Whether you want to have an emergency fund, buy a house, or want to save for something fun like a vacation, focus on what your savings can do for you. That way, putting money into savings isn’t a hardship: it’s just you taking the steps to buy something you really want that you can’t afford immediately.

Still, it can be tough to take money from the things you want to do right now—like go out to the movies or have a night out with friends—for something that seems like it’s far in the future. Though you should stay focused on what you’re saving for, we do have some helpful tips to make bolstering your savings a little less painful.

1. Set Savings Goals.

Like we said above, it’s important to have goals when saving. Not only does it give you something to focus on, it can also help set a timeline for your savings needs. If you’re buying a new car next year and you want a $2000 downpayment, you know exactly how much you need to save each month to hit that goal. When you do hit that goal, you get the delayed gratification of a new car.

A vague goal, like “I want to save more,” may sound good in theory (or as a New Years’ resolution), but the unspecific nature of the goal may be setting you up for failure. Without a clear indication of whether you’re meeting your savings goals or not, it’s easy to get distracted and decide to splurge on something instead of tucking money away for a rainy day.

Instead of a vague goal, try “I want to build a $1000 emergency fund” or “I want to save for a vacation to Hawaii next summer.” Each of those is a clear goal that you can focus on meeting—then decide on your next goal from there.

2. It’s Okay to Start Small.

It’s easy to get discouraged from savings when you don’t have much to save. If you have a big goal, such as a down payment on a house, but can only afford to set aside $100 a month, your goal may seem so far away as to be unreachable. But every savings plan has to start somewhere, and even a small amount will add up over time. The point of saving is to help you hit long-term financial goals: even if you can’t buy it with your paycheck this month, you can get there over time if you save.

So save what you can and don’t be discouraged if your savings seems small. It’s a step towards something larger!

3. Work Savings into Your Budget.

If you have a budget (and you should), because it can really help manage your money, be sure to plan savings into it. Savings is a payment to yourself, so it shouldn’t be an afterthought: work it into your financial plan.

4. Automate Your Savings.

The less you have to think about saving money, or the fact that you could be spending this money on things right now, the more likely you are to actually do it. That’s why automating your savings is so effective. Many employers can automatically deduct funds for a retirement account directly into your paycheck, so the amount you’re saving isn’t even included in your paycheck; which means you never feel like you’re losing money this month by saving it for the future.

Though that’s only useful for certain retirement accounts, you can use the same logic for any kind of savings: most financial institutions will allow you to schedule automatic transfers from checking to savings so you can set up your own automatic savings plan. Just remember to include the amount you’re saving in your budget so you aren’t overspending!

5. Save Your Windfalls.

Did you get a raise? Buy a winning lottery ticket? Get a check from a relative for your birthday? Sure, a windfall is cause for celebration, but can also be a great way to help grow your savings. Instead of spending it all, put it into savings so you can hit your savings goals and buy the things you really want in the future.

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