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How to start a savings plan

Tags Financial Planning
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How to start a savings plan

If you’re looking to fast track your savings this year then it pays to start with the basics. Stick to this guide on how to start a savings plan and you’ll end up healthier, wealthier and happier.

Each year RaboDirect analyses Australia’s savings habits and comes up with its RaboDirect Savings and Debt Barometer. Perhaps surprisingly given the strength of the Australian economy, the results for 2012 show that around a third of the population believe they are experiencing financial stress.

Why save?

There are many very sensible reasons to learn how to start a savings plan but most of us don’t pay much attention to them, so here’s a more compelling one: if you go from being a spender to a saver you won’t just end up with more money, you’ll also end up healthier and happier. Believe it or not, the RaboDirect Barometer found that those who were in the ‘regular savers’ category reported higher levels of happiness and health than those who fell into the ‘unrestrained spenders’ category.

Quick tips for fast savings

It’s perhaps not coincidental that there’s roughly the same percentage of the population (around a third) who say they find financial planning daunting as say they are under financial stress. If you want to become one of those carefree ‘regular saver’ types, use these tips to start a savings plan:

Keep a spending journal

Record everything you spend your money on. This might be confronting at first but working out where your money’s going is the first step to cutting back on spending and ramping up your savings.

Create a flexible budget

From the information you have from your spending journal, put together a realistic budget. If you’re paid monthly, work on a monthly budget; if you’re paid weekly, go for a weekly one.

Allow for reasonable extras

Don’t be too hard yourself when putting a budget together – are you really going to go cold turkey on those daily coffees? Work out your non-negotiables and work them in to your budget. It’s better to be realistic than find yourself short.

Embrace technology

The RaboDirect Barometer shows that Gen Y are clever about parking their savings in high-interest accounts online, but everyone could benefit from this enthusiasm for the internet. Set up an online savings account that’s separate to your everyday account and doesn’t have a card attached to it to avoid overspending. Make use of financial apps to get organised.

Commit to regular saving

Whether it’s 10, five or even one per cent of your salary that you can afford to save, put it aside as soon as your salary arrives in your bank account. Your bank will be happy to arrange a direct debit so you can simply ‘set and forget’, confident that you’re building up some capital that can be used in a (genuine) emergency if necessary and, in the meantime, generate interest.

Only spend what you have

This might sound obvious but it’s the most important point when it comes to saving money. It’s all too easy to put something on credit or take a portion from next week’s budget and promise yourself you’ll make up for it with your next pay cheque. Avoid doing this at all costs!

Soon enough your savings plan will become second nature and by the end of the year you’ll feel the financial freedom you’ve always dreamed of.

In summary

  • Set a goal:
  • Short term 1 -12months like a holiday or buying a car.
  • Long term like a deposit for a house or retirement.
  • Calculate the cost of goal.
  • Set a date – when you want to reach your goal.
  • Be realistic – otherwise beans on toast can get boring.
  • Set a weekly budget and commit to saving a set amount every week.
  • Set up an automatic payment to your savings account so you don’t need to think about it.
  • Use regular reminders to stay on track – budgeting apps, stick the budget to the fridge.
  • Consider leveraging the power of compound interest by using a high interest savings account.
  • If you’re saving for retirement, you might like to think about taking advantage of tax breaks around salary sacrificing for superannuation.
  • Pay it forward – If you have debt with high interest payments (like a credit card), pay it off first.
  • Stick to the plan
  • But reward yourself along the way.
  • If planning for something long term, get professional financial advice and consult a financial planner.