You must have seen babies and how they crawl before they start taking their first step to walk. Their first step towards walking is in many ways also the beginning of their journey towards life. It might seem difficult and complicated initially, but they have to do it if they want to excel in their life.
The same thing applies to your savings plans. While you know you have to work towards saving right from the initial years of your employment, there is no need for you to take giant leaps towards it. Even though getting started with your savings plan might seem like the hardest thing to do, it is definitely not impossible. Taking one baby step at a time can help in making your first move towards having retirement savings, which will eventually lead to setting the momentum for your future savings plan.
However, it might be difficult for you to figure out the best ways to save money so that you can pursue your financial goals. But, following some simple steps will not only help you adapt to the habit of saving but will also assist in developing a realistic savings plan.
Here are the baby steps you can take to move towards your financially secure retirement:
Start Recording Your Expenses
The very first step that you can take towards your saving plan is to figure out how much you spend. Start tracking all the expenses that you make; this should include everything from your groceries, to travel, coffee, snacks, newspaper, utility bills, etc. You need to keep track of every single penny that you spend. Once you maintain the data of expenses, categorize them according to their group like groceries, rental, entertainment/eating out, etc. If you are unable to do so, check your credit card and bank statements to track your expenses. For those who use online banking, filtering the statement to get the breakdown of their expenses will become much easier.
Prepare a Monthly Budget
Once you get a clear picture of how your money is being utilized in a month, you can take steps to organize your expenses in a way so that you end up with a workable budget. Your budget should be a reflection of how you are measuring your expenses in accordance to your monthly income. This way, you get a chance to plan your spending wisely and eliminate areas where you might be overspending unnecessarily. However, you must keep in account the expenses what come regularly but not necessarily every month, like car maintenance, the insurance premium, etc. So plan your budget accordingly.
Work on a Savings Plan
Now that you have a budget designed for your monthly expenses, it’s time to work on your savings plan as well. Open a savings account and put at least 10 to 15% of your savings in it. If you think sparing even 10% of your monthly income for savings is difficult for you then you need to cut down your expenses on things like dining out and entertainment.
You can consider savings a part of your monthly expense plan like groceries so that you can reinforce savings habits on yourself.
Choose a Savings Option
Setting a goal will be the best way to start saving money, so connect your saving with a goal like having a down payment for your favorite car or an international vacation. Figure out how much money you need to do so and how long it will take for you to reach that level. For example, if you need $50,000 for your holiday, start saving in a savings account and once you reach the $25,000 mark, put that money in a fixed deposit or certificate of deposit for a year. This way, you can continue saving for another one without the fear of spending the money that you have already accumulated.
If you have short-term goals, 6-month fixed deposits and a certificate of deposit can also be good options to begin your savings. For example:
Vacation and car down payments are short-term goals of 1 to 3 years, whereas your retirement and child’s education are long-term goals. For long-term goals you can either open a single fixed deposit with long tenure or invest in multiple small amount fixed deposits and keep renewing them every year. This way your money will remain secured and there will be minimal risk attached to it.
Prioritize Your Life
Once you are done analyzing your expenses and income your goals will have the biggest impact on your savings plan. Here, you must keep your long-term goals in mind and they should not take a back seat to fulfilling your short-term goals. Prioritizing your goals can give you a clear idea about from where you need to start saving.
Pick the Right Savings Tools
It is important to invest money in the right kinds of savings tools, especially when you are aiming at short-term goals. Consider savings in regular savings accounts, insured deposit accounts and fixed deposits to get higher returns on your money. Other options like bank money market savings accounts can help you see your money grow over a course of time without putting it under any risk.
If you are aiming at long-term goals then securities, stocks, mutual funds and individual retirement accounts can be your best bet. All these options can be availed either through a bank or a broker to make the most of your money. However, stocks, securities and mutual funds are neither insured nor given any guarantee by the issuing organization and are subject to investment risks. Thus, make your choices after complete consideration and analysis only.
Automate Your Savings
Automated transfers and standing instructions on your bank account are nothing new. You must be using these tools for paying bills on time, so why not use them for savings as well. Set an automatic transfer on the amount of money that you wish to save every month without fail to your savings account. Automated transfer will save money for you and will not allow you time to rethink your savings each month, thus reducing your temptation to spend the money assigned for saving.
Let Your Savings Grow
Now that you have taken your steps towards a saving plan, it is necessary to keep checking the plan on a monthly basis. This will help you in sticking with your goal and will also help in fixing any gaps there might have been in your initial savings plan. Following these simple baby steps will further motivate you to run towards savings so that you can reach your goals faster.
