All of us try and save at least 10% of our income, but are we actually saving it. Most consumers suffer from what we like to refer to as “illusional savings”. This, as the name suggests is an illusion where clients think they are saving but spend on various items, especially when luxuries are disguised as necessities.  We have put together a simple set of tips to help you create a savings plan.

Saving Plans – Tips To Get Started

While most of us are fairly certain that we have a savings plan in place, here are few easy tips to ensure that you are getting the most out of your savings plan:

1. Create A Budget: We have harped on this issue before, but no amount of emphasis is enough to describe the importance of creating a budget. List all your incomings and outgoings in priority. Make sure to leave luxuries and shopping binge expenditures to the very end. Once you have done this you will be amazed to see how much of money you have been spending on unnecessary items.
2. Set Yourself A Goal: Taking baby steps is often the way to go. If you have been overspending, setting yourself a goal of saving$1,000 by the end of the month may be a bit of a stretch. Set yourself small achievable goals like managing to save 10% of your weekly net pay every week. Once you start hitting your targets, keeping raising the bar and before you know it you will be well on the way to creating substantial savings.
3. Cash Is King: The biggest mistake people make is by over using their credit cards and under using their cash. When you spend out of your credit card, you feel that you haven’t touched your hard cash and hence feel that y0ou might be in a better situation. This is a classic example of”illusional savings”. By not using your cash and over using your card, you are actually spending money you don’t have and hence are stretching your finances. At the end of the month when you receive your credit card bill or store card bill you are shocked by the amount you spent and the interest for which you are now liable. This however would not have been the case had you used cash, because not only would you have felt it every time you spent, but also you would not have to pay any interest on it.
4. Prioritise Your Liabilities:  If you have a personal loan, mortgage loan or a high interest credit card, make sure that you are meeting these payments and other necessities around the house prior to making any other expenditures. In a lot of cases once you have made the immediate payments first, you might no longer feel that certain expenses are necessary and hence enable yourself to fast track your savings plan.

Invest Saved Money in Saving Accounts

The next issue that arises is what do you do with all the money you have saved? After all, your money is only good when you make it work hard for you.  Here are few suggestions to help you create an effective savings plan:

1. Savings Account: These savings accounts can be opened with banks, credit unions, Building societies and savings and loan thrifts. These accounts usually pay a competitive interest rate and offer easy access to your money. However, if you feel that you might be tempted to withdraw your funds then you might want to get yourself a account, that only allows a set number of transactions every month or quarter and beyond that charges you a certain fee per transactions. This may be a good way to keep your spendthrift habits in check.
2. Money Market Deposit Accounts: These are also known as money market account and are federally insured. They work the same way as money market funds do. The catch with opening one of these accounts is that the minimum deposit amount is higher and the numbers of transactions are limited in line with federal regulations. However, these accounts pay higher interest or dividends in comparison to savings accounts.
3. Deposit Certificates: These are meant to invest a fixed sum for a fixed period for a fixed interest rate. These are quite simple in operation. The depositor decides to deposit funds for a fixed period of 3,6,12 or more months and in turn the institution pays the depositor a fixed interest rate. If the depositor withdraws the funds prior to the maturity of the term he/she either has to pay a penalty for early withdrawal or must forgo a part of the interest earned.

These are just a few ways to help you create a savings plan and work your way to a more cash positive situation.

References:

1. How to Make a Savings and Investing Plan – Young Money
2. How to create a savings plan that works – Epinions