Recent studies show that the rate of savings among Americans is at an all time low. In fact, not only are we not saving, but we are spending more than we earn as is evidenced by spiraling credit card debt, bankruptcies and foreclosures. If your spending have gotten away from you don’t despair, you can rein it in. Fiscal health comes with planning and purpose. Following are five steps to put you on the path to a sound savings plan.
1. Set a goal
It is easier to save when we have a purpose for our savings in mind. Generally, saving feels less burdensome when we choose to save toward something that we are excited about. For example, you might set your savings sight on a new car, a vacation, a home or three months of household expenses to be used in the event of an emergency.
2. Determine an amount to be saved
Now that you know why you are saving you have the motivation you need to move to the next step, which is determining how much you will need to save. If you aren’t sure of the amount you might consult with a car salesman, a realtor or even your bank to learn how high you should set your savings goal.
3. Take a look at your budget
You will be more likely to reach your savings goal if you examine your spending habits and find expenses that you can reduce or eliminate. Begin by taking an inventory of everything that comes in and everything that goes out. If you aren’t sure where your money goes you might want to keep a spending diary for a week or two. Tracking expenses can help you highlight those budget busting habits, thus making more money available that can be reallocated for savings. If you bank online you may be able to get some clues there as spending is displayed in real time.
Obviously there isn’t much you will be able to do about fixed expenses such as rent or mortgage payments, but you can shave a few dollars off of other expenses such as entertainment, food, clothing and in some cases utility expenses (for example by setting your thermostat higher in summer and lower in winter you can reduce your heating and cooling costs).
4. Set short and long-term savings goals
A thorough review of your budget should give you an idea of how much you can reasonably afford to save each month. It is very important that you set goals you can live with because, if not, you may become discouraged and abandon your savings plan. Put another way, be realistic. Saving is not unlike dieting in some ways. Too much deprivation can result in binging. It is better to plan to blow $30.00 than to fool yourself into thinking that you will stick to a super restrictive savings plan only to blow $300 in a moment of abandon.
5. Monitor your progress and celebrate your success
Keep a journal that records your progress. You might even adopt the approach used by many churches and non profits of displaying a meter that charts rising resources toward the new building fund or other fundraising target. You can even include a picture of your savings target to help you stay motivated.
You can set and reach savings goals. Just make up your mind, make a plan and stick to it. If you fall off the savings wagon, don’t use that lapse as an excuse to abandon the project altogether. If at first you don’t succeed, try, try again.