There are many times in life that you will have your eye on a big purchase and you will need to plan ahead to save up for it. Whether it’s the down payment to buy a car or house or any other big ticket purchase, there are steps that you can follow to make it much easier for you to reach your savings goal. Read on to find out how simple it can be to make a savings plan.
How Much Do You Need To Save
The first step is to determine how much money you need. You may have to do some research to estimate how much you’ll need for a down payment or to buy something in full. This is important because it is the foundation for your entire savings plan so don’t guesstimate, find out the real numbers and if you aren’t 100% sure then it’s always safer to go on the high side. Don’t be scared by the amount - just figure it out and move on to the next step.
How Will You Save It
If you currently save some money each month then figure out exactly how much you are saving. The best way to do this if you are unsure is to log all of your expenses for the last calendar month and compare this to your take home pay. The difference is what you should be keeping in a checking or savings account. If you aren’t saving at all on a monthly basis then this is the time to start. Try to adjust your spending habits and look for ways to cut expenses that are not necessary. For some ideas, read 9 Ways You're Losing Money Without Even Realizing It.
You should also consider additional ways to make money. Take up a side gig or sell some stuff! Do what you can do to make some extra income and allocate that directly to your savings.
Decide how much money you can set aside each month and actually put it in a savings account. You can make it automatic by setting up a recurring transfer each month from your checking account.
When Do You Need The Money
So this step can be challenging. If this is something that you can say, “I can wait 2+ years until I purchase it,” then great. If not, you may have less time than you would like, so you’ll really have to change your spending habits.
Here is an easy formula to find the monthly amount you need to set aside to meet your goal: Amount You Need To Save/Number of Months
Let’s say you need to save $5,000 and you have 1 year to save. $5,000 divided by 12 is $416.67 per month for 12 months. So if you can cut monthly costs by $200, then you’ll need to find ways to make an extra $216.67 a month. It’s doable if you set your mind to it.
On the other hand if you need to save $10,000 and you are really planning ahead, then you can be more flexible. If you can save for 3 years, you’ll only need to save $277.78 per month. It all depends on your situation. Try to plan as far out as you can, but this is not always possible.
Remind Yourself Why
You may need to buckle down and make some life changes to meet your goal. We know it’s difficult but keep your eyes on the prize. It will be so worth it when you’re able to achieve your savings goal and make that purchase. One of the biggest challenges will be sticking to your budget. For this, we made a list of effective ways to help you stay in control and maintain your budget.
Where To Put Your Money
As mentioned previously, we recommend putting this money in a separate account from your spending money and any other savings. If you put your savings in a high yield savings account, your money will grow even more than in your regular savings account.
Credit Karma offers a high yield savings account with no fees or minimums. The annual percentage yield (APY) is 1.8%, compared to the national average of 0.09%. With a yield 22 times the average, your savings will be growing much faster than most people’s.
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