Today, I want to talk about Financial Savings.
I’m starting by prefacing that my thoughts on this are things that work for us. I’m here to offer tips and ideas of ways you can look at your current finance habits to prioritize your needs and wants.
For me, the words “savings” and “sacrifices” go hand-in-hand. Think about the world we live in, now. How many times do you see an item that you would like to buy? Maybe that item wasn’t on your shopping list, but it sure looks great and, hey, why not? Often times things like that can be as little as a candy bar, or something as big as a new TV. Now, that candy bar may not take you completely over budget for the month. However, that TV may not exactly be a chunk of change you have available. So what do you do? Sometimes you’ll go ahead and buy that candy bar and not give it a second thought. That TV? Well, stick it on the credit card and within a few months it will be paid in full. Or, grab a little out of your savings and you can wait a little longer for what you had in plan for that savings total. No big deal!
I’d like to challenge you today to look at both of those examples from a different angle. We’ll come back to this.
Setting yourself up for Saving Success
Making a plan for saving and actually implement that plan are to completely different things. In order to be successful at putting a plan into practice, you (and only you) need to decide that it will happen. You cannot go into things thinking, “I’ll give it a shot and see how things go”. If this is the mindset you have going into things, you will fail.
Do you remember a couple of weeks ago when I talked about Finding your REASON? If not, take a few minutes to read over that HERE. Just like implementing a budgeting plan, you need to find that reason for a savings plan as well! Finding your REASON will help to motivate you to stay on track and remember why you are working so hard for this.
To start with, I’m asking you to sit down and make a list of reasons why you want to implement a savings plan. I’m not asking about the things you want to save for. I’m asking WHY you want to save. Go ahead and grab a pen and paper. I’ll wait.
Ready? Now think for a minute of why you want to have some extra money set a side. As you do this, consider the following questions:
- Where do you want to be at a certain point of time (1 year, 2 years, 5 years, 30 years, etc.)?
- What goals do you have/what is your reason for wanting to save?
- Are you wiling to make a sacrifice to stay on track with your savings plan?
Now that you have a better idea of why you want to save, let’s talk about what kind of different things could fall into a savings plan. I’ve made a quick list below. Maybe this can help you to get an idea of the types of things you want to save for. Remember, the examples I’m sharing are solely based on things that relate specifically to our family. These ideas are here to help get your mind going for what is important to you.
- Education
- Future purchases (vehicles, a camp trailer, maybe something like that TV we talked about a few minutes ago)
- Emergency funds (unexpected medical expenses, vehicle maintenance, home repairs, etc.)
- Holiday/birthday purchases
- Retirement
- Vacations
The list could go on and on. Get an idea of things that are important to you. Those are the thinking that should be on your list.
Creating YOUR Successful Savings Plan
While lists and thoughts are wonderful, we now need to put an actual plan into place so that you can now see yourself contributing to your savings plans. I talked about saving money in THIS post through my 20% flex plan. If you need a quick reminder of how that flex plan works, take some time to review that post.
If you are brand new to making a financial plan and starting completely from scratch, your seriously need to consider putting emergency funds savings at the top of your priority list. Most financial advisors suggest having 3-6 months of your income in a savings account, just to be safe. Do you have the means to cover your bills and finances, should you unexpectedly lose your job or get injured and not be able to work? Yes, it could be a rare instance, but should something like that happen, it’s best to be prepared!! Outside of job loss, there are so many unexpected things that come up in life. A worn out water heater, broken bones, etc. Do your best to be prepared and not create more debt for yourself as a means to survive those tough times.
Now, depending on where you currently are in your own financial journey is how and where you need to prioritize your savings needs. Let’s go back to that list you created of things that you want to save for. Your list may be 3 things, it may be 20. That’s ok!! I’m going to ask you to now number that list in order of your top priorities. I truly hope that emergency savings will be at the top of your list. However, you do you!
Using a Savings Plan
We can now look at applying your 20% flex plan to your savings plan. If you need to contribute a portion of your 20% flex amount to a debt payoff, keep that as a plan! As interesting as it may sound, taking care of your debts is a very key part in succeeding with a long-term savings plan. I discussed debt payoff more fully in THIS post and suggest reading that if you haven’t done so already.
When actually implementing a savings plan, you need to take your 20% flex amount seriously. If you have this flex amount split into a 10% debt payoff and 10% savings amount, take this total amount to heart. Let’s put some actual numbers into play for a moment to help visualize what your savings totals could be. Remember the 10/70/20 plan I’ve mentioned? I’ll be referencing that here.
Let’s say you make $3,000/month. $300 of that goes to your donations/contributions, $2,100 of that goes to your living needs, and $600 goes into your flex amount. $600 is a lot each month!!
Now, let’s say that of that 20% flex, you are splitting that into a 10/10 plan to help pay off some debts. Great!! That is still a $300 contribution to both debt payoffs and savings! Over just 1 year, you’ll be saving $3,600!! Plus an additional $3,600 to payoff a debt you have. Wow. That really is a lot of headway and can make a big impact on your long-term goals. If you would like to contribute more to a debt, adjust that to a 15/5 ratio, or use 15% to savings and 5% to debts. The wonderful thing about this flex plan is that you have the freedom to adjust, as you need.
Keeping tabs on your savings contributions
While you definitely have the options to make whatever savings plan you’d like, I do want to share a little more transparency with you of how we apply some of this to our own lives. We currently have 6 different savings accounts set up for our own savings management (outside of retirement contributions).
- Main Bank Savings – This is a main account, tied to our checking. The bank uses it as overdraft protection. We keep some there, but not a lot, just in case our accounts were ever hacked or maliciously accessed.
- Larissa’s Misc – side hustle money I earn from hobbies. I use this to buy things for my hobbies, as to not pull from our family funds.
- Jaron’s Misc – side hustle money he earns from hobbies. He uses this to buy things for his own hobbies, as to not pull from our family funds.
- Vacation Savings – pretty self explanatory. I’ll be writing a separate post about vacations savings and how we manage this.
- Vehicle Maintenance – Jaron uses a personal vehicle for work and receives a reimbursement for such. We use this account to help with his work vehicle’s maintenance needs.
- Personal Savings – We keep this separate from our main savings account. We manage this differently, over time, and adjust as our savings needs vary. If it is easier for you to keep track of things, you could also break this into smaller accounts such as medical, home, holidays, etc.
As you set aside the 20% flex amount for your savings, keep in mind where your priorities are in saving. If you need to focus on building the personal savings, contribute a large (if not full) amount of the 20% flex total to your personal savings. If you feel comfortable with that particular savings balance, move onto another.
Your flex plan is not your only option!
At this point, we’ve talked about figuring out why you want to save, what kind of things you want to save for, and ways you can actually save that money. But, what if that amount in your 20% flex plan doesn’t quite get you to where you need? What if you’re contributing a lot to your debt payoff ratio and still want to save, or simply want to see more contributed to that ratio? This is where our candy bar/TV analogy comes into play.
Succeeding in plans means making some type of sacrifice at some point. We can’t live a free life while having some type of give somewhere else.
How often do you find yourself grabbing that candy bar in the checkout line? Maybe you stop and get a soda each day, or even more so, regularly eat out for breakfast or lunch. I want to challenge you to write down an average of what you spend when you do participate in that regular splurge. Now, how often does that happen in 1 week? Now, 1 month, and now, 1 year? What is your final total? How much of a difference can even that amount make toward your savings plan? $100 may not sound like a lot for 1 year, but over 5 years, that then turns into $500!
I’m not saying that you cannot enjoy a little something here and there. I’m just encouraging you to think of how often you are participating in those behaviors, and how cutting back just a little could make a big difference in those long-term goals you have. It all comes down to sacrificing and prioritizing what is important to you.
I would like to invite you to implement some practices that relate most to you. Remember, start with some small baby steps and take things one bite at a time. Long-term changes don’t happen overnight. As always, I’d love to hear from you and learn of ways you find success with your budgeting and debt management. Feel free to leave a comment on this post with your thoughts and ideas!
Want to learn more? Don’t miss my other post in this series:
Budgets and Sacrifices – a financial management program that works for us NOW!