A savings fund should be a vital part of any well-developed financial plan. One of the first things you should consider prior to opening a savings account is your long, mid and short-term financial goals. Perhaps you want to take a special holiday, buy a car, save for a home, or even plan for your retirement.
Whatever your plans are, it is good to write them out or put them in a spreadsheet to get a visual on what your plans are.
Then start looking at which accounts will help you achieve your goals. There are multiple types of saving accounts and investments’, choosing the right product is important in not only being successful but doing it in a shorter period.
Set Up a Savings Plan
You can start by writing down a list of all your future goals, such as buying a home, purchasing a car, saving for your education, or taking a vacation. Now prioritise this list by placing the goals that are most important to you on the top of the list and so forth. Next, take the first item on your list and determine approximately how much it will cost to obtain that goal. Now list several ways you think you can save the money you need. This list might include cutting back on some of your spending, getting a side job, or investing your money. Take your written plan and post it somewhere in your home that you will see it often. This will serve as a reminder of what your goals are and keep you motivated.
Planning for Short-Term Goals
A short-term goal is one that you should be able to achieve in one to four years, such as buying a car, paying off a certain debt, or buying a new household appliance. The best way to save for short-term goals is to find ways to cut back on your typical spending like dining out or entertainment. Chances are you could live with a limited budget in these areas for a short period of time, if it helps you achieve your goal.
Try using cash instead of your debit or credit cards. This will limit what you have available to spend and can avoid impulse spending. Keep track of what you spend and place it in a separate savings account so you are not tempted to spend it. You may even earn a little interest on your money while saving.
Planning for Long-Term Goals
Long-term goals are those goals that are likely to take more than five years to achieve, like purchasing a new home or saving for your retirement. These goals take a little more planning and preparation. Simple cutting back on your household expenses is not likely to be enough to achieve these goals. Instead, you need to focus on how to invest your money so you can earn even more over a shorter period of time. Getting professional assistance can be a good option here, or save the money you would spend on them and DIY. A great free way to learn about how to invest for the long term is to talk to successful people and ask them what they do – it really does work!
If your goal is to save for a home and you’re on low to middle income, you should consider investing in the First Home Savers Account. This account allows you to save for your first home and the government will also contribute up to 17 per cent of the first $6,000 you deposit each year.
An emergency fund is a must have for any individual or family serious about finances. Unexpected events can happen at any time and being able to cover them without taking out a loan is vital in staying out of debt and getting ahead. Depending on where you look, many financial gurus recommend that you have at least three to six months of emergency savings set aside. This type of buffer will help alleviate some of the financial pressures associated with an emergency and give you time to get back on your feet. Learn more about emergency funds here.
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