Wait. What?! Does that say Save 2016 Before It’s Too Late? Too late for what? 2016 has only just begun.
That’s right, we’re only days into the New Year, but you must act now if you want to Save 2016. I’m not saying that the whole year is about to be lost. What I am talking about is there is no better time than now to start your savings plan.
But, I’m just not very good at saving money. I’ve tried saving and just never get anywhere before I have to spend what I’ve saved. Where do I start?
Many people get a pay increase at the start of the year. If you’re one of those people, congratulations! This a great way to start your savings plan. You are already accustomed to living on your 2015 pay, so keep living on that amount, and save the extra.
For others, it may take a little more work and a little more sacrifice to make your 2016 savings plan happen. (We will get to that a little later.)
The word “plan” has already popped up three times in this piece. Is that important?
Let me pause here for just a minute. Probably the most important part of saving is having a plan, so let’s talk about that. Zig Ziglar said, “If you aim at nothing, you’ll hit it every time.” That is especially true when we’re talking about things that take a lot of discipline – like personal finances.
If you aim at nothing, you’ll hit it every time.
– Zig Ziglar
Now, let’s be clear, you don’t need an elaborate plan to be a successful saver. You just need to make a plan and stick to it. To get you started, I created the My 2016 Saving Plan worksheet. Before you go fill that out, though, let’s talk through it.
Success Starts with a Plan
The first thing required with any plan is commitment. This is your plan. Own it.
How much do you want to save? Be specific. Specific.
You want to save enough to go on cruise? Great! How much does the cruise cost? Don’t know? Google it. While you’re on that cruise, what are you going to want to do? How much does that cost? Google that too. Add up all those costs and now you have your number.
You want to save enough to buy the most awesome Christmas presents your family has ever seen? Great! How much do you think you’ll need? Depending on your family situation, this might take more than Google and a calculator. You want to buy your kids the hottest toys for Christmas 2016? Well, you’re going to have to estimate. Do your best, add up all the expenses,and, Voila! you’ve got your number.
You want to have a fully-funded emergency fund? AWESOME! How much are 3-6 months of your household’s expenses? Experts recommend that the less “stable” your job situation, the more you need in your emergency fund. For example, a salaried employee that has a good job with an established company can probably get by with three or four months worth of expenses set aside, while someone working on 100% commission will probably want at least six months of expenses in reserve. Look back at your bills for the last 3, 4, 5, or 6 months – don’t forget things like groceries, school tuition, daycare, and gasoline (even though you may be out of work, you may still want to keep the kids in daycare while you’re actively looking for a job). I’ll stop here on this because an emergency fund could be a whole article by itself.
Now that you know how much you want to save, when do you need it? You’ll need money for a summer vacation much sooner than you’ll need money for Christmas gifts, and you need an emergency fund yesterday, so some target dates are easier to determine than others. Be as specific as you can, and think about any lead time in your plan. You don’t want to set December 25th as your target date on buying those Christmas presents, rather you may want your target date to be in late November to allow you to have the money when you can get the best deals. Same goes for vacations, you probably don’t want to buy your plane tickets the day you leave.
You’ve got your Amount and your Target Date. Now, write out your Purpose. Be specific and use language that will keep you motivated to stay on track when things get tough – because they will.
If you’re saving for that cruise don’t put “Cruise” as your purpose; it’s way too bland and not nearly enough to get you through the rough patches. Instead, think about why you want to go on the cruise and/or what you want to experience. Maybe something like, “To take a Caribbean cruise and experience the sights and sounds of Jamaica and Grand Cayman. To snorkel around a coral reef and enjoy discovering marine life that I’ve only seen on TV.”
If your goal is to buy Christmas presents for your family, don’t write “Christmas presents”. You will undoubtedly get to a point in the year that you will want to sacrifice your savings plan for something more immediate, and you will need more than “Christmas presents” to keep you focused. Why do you want to buy those Christmas presents? You want to see the faces of your children and/or grandchildren light up with delight when they realize that they will be the envy of the neighborhood/school when they get to show off what you bought for them. Write that down. Use their names. Try something like, “To see the joy on Katie’s face – and hear her squeal with delight – when she realizes that I bought her the ‘it’ toy for Christmas.”
In like fashion, don’t just write “Emergency Fund” if that is your goal. An emergency fund is an insurance policy that ensures you and your family will have some cushion and be able to continue living as you’re used to if you should lose your job or if some other financial hardship befalls you. A better Purpose may be something like, “To create a financial security blanket that will act as a lifestyle insurance policy for my family should any financial hardship come our way.”
The next step is the most important step – and it’s the hardest one. You have to start. When are you going to start? Write that date in the blank – and set it in stone. You WILL start on that date.
Starting may involve more than making a deposit. Think about what it will take for you to Start your Plan.
Do you need to open a savings account? If so, how soon can you make it to your bank to do so? Can’t make it during business hours? Many banks will allow you to open an account online. Check your bank’s website to see if you can open an account online, or find a bank that will allow you to do so.
Do you need to create a monthly budget so you know how much money you have to save? (Hint: Yes, you do need a monthly budget so you know how much you have to save. Dave Ramsey has some of the best budgeting tools I know of – check them out here.) This step is going to be especially important for those people who did not see their pay increase at the turn of the calendar. If you want to save more in 2016 than you did in 2015, you need to plan how you will spend your money differently. Take some time and think through a monthly spending plan – and do this at least once each month.
Now that you know how much you have to save, and how much you need to regularly deposit to achieve your goal, determine precisely how you are going to do it. Notice, I said “regularly deposit”, you need to commit to making regular deposits on a schedule. My advice is to automate the savings plan to the extent possible. An easy way to do this is to set up a regular transfer from your checking account into your savings account with online banking. First United’s online banking makes this very easy. Another way is to see if your employer can split the direct deposit of your payroll into more than one account. That way you can have your savings amount go directly into your savings account without ever hitting your checking account – that way there is less temptation to spend it.
Up to this point, we’ve been talking about saving for a purchase or emergency fund, but retirement is another very worthwhile goal. Why not take this opportunity to either start contributing to a retirement account, or increase your contributions? And, don’t think this has to be either save for a purchase or for retirement. If you adjust your goals and your budget, you may have enough money to do both.
Again, regularly contributing funds toward your goal is the only way to ensure you’re going to succeed in achieving your goal. Determine your savings schedule – AND STICK TO IT!
Keep yourself motivated throughout the year by creating milestones and measuring your progress at those times. I suggest four milestones: Quarter-way (half way between your start date and your Half-way Point), Half-way, Three-quarter-way (half way between your Half-way Point and your Target Date), and finally the Target Date – the date you will reach your goal.
When you reach your goal, I recommend rewarding yourself in some way to congratulate yourself for making it all the way to the goal. Yes, reaching the goal will be quite a reward, and maybe the goal is to make a rewarding purchase, but you need a more immediate reward. Your reward can be small, but make it meaningful to you. Take yourself out for ice cream, or to a movie on the day you reach your goal – after all, you worked hard to get there and you deserve it.
OK, so what happens if you’ve read this far and you don’t think you have any money left to save? Well, you’ve read this far, so you obviously want to start saving. Maybe you just need to look at saving in a different way. Check out this article about my friend Hannah, then come back and read this article again with new perspective.
Now is the time to take action and Save 2016, before it’s too late!