Create A Savings Plan in 3 Steps

by MSE Staff | Published 8 Mar 2022 

Everyone will agree that saving money is important. You may hear the occasional warning that money sitting in a savings account that cannot beat inflation is losing value every year. This might be the case; however, it is important to have a part of your assets set aside that you can access on short notice. When you have money set aside it serves a purpose like covering the deductible on your insurance, going on vacation this year, or sending your kids to college. Let us walk through creating a savings plan.

#1 Set Goals

Why save money? We save money to secure our basic needs well into the future such as food and shelter. We also save money to protect ourselves from life events such as medical emergencies, family emergencies, vehicle repairs, loss of income, and insurance deductions. We even save money for annual expenses, investments, holidays, vacations, college, and so on. Through it all there is a common thread. The money we set aside is there to support our quality of life. That is why we set savings goals in three categories: catastrophic life events, short-term goals, and long-term goals.

#2 Catastrophic Life Events

There are a few catastrophic life events that we may all experience at some time. While insurance plays an important role in protecting our assets in an emergency it is important to have money set aside to cover deductibles and other related expenses. Catastrophic life events include unemployment, insurance deductibles, critical home repairs, critical vehicle repairs, family emergencies, and medical emergencies. A simple starting point for this savings goal is first have enough money set aside for your highest insurance deductible. Once you reach that goal, set a new savings goal to save six months of living expenses. The second part of a savings plan is short-term goals.

#3 Short-Term Savings Plan

There are things we want to have in life like being able to give our loved one’s birthday gifts, buy presents for the holidays, attend special events, go on vacation, etc. Short-term savings goals are things that we can save for within the year. This is a great opportunity to build healthy financial habits and plan ahead for the future. Other items to include are periodic expenses such as quarterly or annual billing. The third part of a savings plan is long-term goals.

#4 Long-Term Savings Plan

This is where money is saved for future investments. Long-term savings goals include things like retirement, sending kids to college, investments. For this reason, it is a good idea to aim for a 10% contribution to your long-term savings plan each month. While 10% may be a great target, this is not a one size fits all solution. Remember to factor in your age, future cost of living and starting point (to name a few). Always speak with your financial advisor to understand what contribution amount best fits for your situation.

Final Thoughts

By now, you should have a better understanding of how to create a savings plan. Your savings plan should cover catastrophic life events, short-term goals, and long-term goals. When you know what you are saving money for it becomes easier to stay motivated in the process of saving your money. Take a moment to organize your current savings into these three categories. You may have more or less items which is okay. The best first step is to see where you are and then begin to make progress in the areas you seek improvement.