- How to set up a savings plan that you can stick to
- The secret to saving money
- Why you need to save money
- What to do when it all goes wrong (and it will)
If you’re anything like me, you’ll know from past experience that put money away into a savings account with any kind of regularity is just not your thing.
In fact, I’d go so far as to say that setting up a savings plan is one of the things guaranteed to make me feel like a complete failure.
Because I always fail.
But let’s face facts, there’s always a way to make things work and we need to give ourselves the best possible chance of succeeding, right?
And for me, these steps are how I give myself the best chance.
1. Set your goal.
The people who are the most successful at something have a strong ‘why’ behind what they are doing. So, first of all, we have to have a “why” that’s big enough to keep us going.
So, ask yourself: why do you want to save money?
- Is it so you can live comfortably in retirement?
- A holiday?
- Your wedding?
- The kids schooling
- A new car?
- An emergency fund?
Whatever your goal is, write it down and put it somewhere you can see it daily, to remind yourself why you’re doing this.
2. Know exactly where you are.
This is not the most pleasant experience when we know our finances aren’t in the best shape, but it needs doing.
Think of it this way, say you want to travel from Perth to Brisbane, but you have no map, no idea of which way is North, plus you don’t even know where Perth is. It’s going to make the journey impossible, right?
So, it’s time to look at all your bank, credit card, loan and mortgage statements and get a clear picture of your finances.
Don’t hide, don’t be disheartened. This is your starting point and you can’t go anywhere unless you know where you are, right? The minute you know where you are is the minute you can begin to take baby steps towards your goal.
As you’re looking through your finances, pay attention to the things you’re spending money on. Take note of the spending that doesn’t align with what’s important to you. What can you change? What needs changing? Where do you want your money to go?
This is when you start to take control and decide consciously what you’re going to spend your money on and create a budget for yourself. It doesn’t need to be detailed, but you need to know where your money is going and how much you have to spend on everything.
Take a note of all the things you’re spending money on that you don’t want to spend money on any more and add up the total. That’s the amount you’ll be saving.
Open a savings account, preferably in a different bank to your normal one, and set up a direct debit for the amount that you’re saving from your day-to-day account to the savings account.
Make sure that you leave enough for your day to day living without leaving yourself feeling deprived.
But transfer the money out of your day-to-day account each week/month before you have a chance to spend it.
3. Automate your savings
Based on your overall goals, knowing where you are and how much you can devote to saving, create a plan around it.
In another article, I spoke about ‘paying yourself first,’ meaning every time you get paid, save a percentage of your income before you do anything else.
It’s recommended that we save 10-20% of our income, but if you’re in a poor financial position (I.e. if you’re swimming in debt), you may not be able to do that.
But the secret is to start and to keep at it and automate your savings.
Don’t do it manually, make it happen automatically.
I can’t stress this enough: make it automatic!
We all know that if we’re left to our own devices (okay, if I’m left to my own devices), it’ll happen for a few months and then stuff will get in the way, and we’ll miss one payment… and then another… always with a good excuse.
So, automate your savings.
Shall I tell you who knows the power of automated payments? The Tax Department. Every tax department around the world takes their taxes out of their populations’ paycheques before the people get their money (at least, I think they do. They definitely do in Australia, UK, US, etc).
Take a leaf out of the tax man’s books and automate your payments to yourself.
4. Monitor your spending.
If you want to use an app, MoneyWiz3 is the best one that I’ve come across (and I’ve tried A LOT of them over the years) for the simple reason that it doesn’t just monitor and track your spending, it also forecasts your bank balances.
So, if you’re in a situation where you need to juggle between accounts, it’s the best app.
If you really want to get on top of your finances, the one thing you absolutely need to do is check your spending and your balances every day.
Spend a few minutes each morning so you know exactly where you are. It’s five minutes that you’re investing in yourself and your future.
5. Redefine your spending habits.
A recent study found that people spend 12% to 18% more at fast-food restaurants when they use their cards instead of cash.
Maybe it’s time to switch back to cash. I know it made a huge difference for me in keeping me aware of exactly how much I’m spending. It’s so much different to hand over cash and see how much isn’t left in your wallet than it is to wave a card at a machine.
You might also want to try the old-fashioned envelope method to reinvent your spending habits. Basically, you have an envelope for each spending category. You draw out cash at the beginning of each month and put the relevant amount in each envelope and then you pay for everything in cash. When your envelope is empty, you’ve run out of money, it’s as simple as that.
It can be difficult to change our choices when they‘ve become habits, but realizing that you might have a habit that needs changing is half the battle. You can change your habits if your ‘why’ is strong enough — but don’t beat yourself up if you don’t get your spending habits the way you want them the first time around.
6. Bounce back quickly & learn from mistakes.
If you mess up – and you will, you are human – don’t worry about it! Just notice what happened, work out why it happened (were you stressed? Upset? Did you just forget? Was it all too hard?) and get back on track as quickly as possible.
Preferably without beating yourself up about it too much.
And definitely without giving up. You will make mistakes, it’s how we learn. So, learn the lesson… and keep going. That’s the only way you’re going to get there.
7. Leave room for fun & rewards.
The biggest reason we’re likely to give up on something, whether it’s a fitness program, a weight loss program or a savings plan, is because we’re left feeling deprived.
When you’re making this plan, leave yourself enough money to enjoy yourself a little.
Fun doesn’t have to be expensive but having a little bit of it built into your budget can definitely help you enjoy the journey. Reward yourself for the changes you’re making and the hard work you’re putting in.