What is a savings plan, and how does it work?
The reason we save is to achieve something, whether it’s to go on a holiday, buy a home, retire comfortably or have enough for a rainy day, but just like anything in life, if you want to make it happen, you have to plan for it. With a savings plan, you’re creating a strategy for growing your money to achieve your dreams.
What is a savings plan?
A savings plan is a tailor-made blueprint to achieve your financial goals. It helps you establish what you need to be able to achieve those goals and how you should go about doing it. That way, you can see how much to save, which type of savings account you should consider, how long it will take to achieve your goal, and how much you can afford to put aside.
Why do I need a savings plan?
We all know that saving is important, but just saving for the sake of it isn’t motivating, and you might lose interest or start dipping into that money if you’re not reserving it for something specific. A savings plan helps you save for a purpose and outlines the road to getting there because having a clear idea of why you’re saving will help you make it a priority and stick to it so you can get there faster.
How to create a savings plan
Creating a savings plan is easier than you think. Here’s how to get started.
Step 1. Look at your budget
Knowing what your finances look like will help you prioritise where your money is going and make changes if you need to. Your budget will give you an indication of how much money you can afford to commit to saving or what changes you can make to unlock more money.
Don’t have a budget template? Use our 50/20/30 rule template to help with your planning.
Step 2. Determine your goals
Knowing what you want to achieve will give you an indication of how long it might take. For example, saving for a vacation, big-ticket item or a wedding can be done anywhere from a few months to a few years, making them short-term goals, whereas saving enough for your retirement requires a substantially larger amount and is a long-term goal.
It’s important to be specific about your goal so you know exactly how much this goal will cost, how long it will take to get to it and whether it is a realistic and worthwhile pursuit.
Step 3. Commit to an amount
Once you know what you’re saving for, when you want to reach it and what your budget allows for, you can decide how much money you’ll be able to put away and how to prioritise your spending. Consistently saving is important because what you contribute and the rate you’re contributing at will determine how fast you’ll reach your goal.
Step 4. Decide where to put your money
With your goals and financial priorities in mind, you can see where the best place would be to stash your cash. A savings or investment account is a safe place for your money to grow, but different accounts have different intended outcomes, and some might be better suited to your needs, wants and circumstances than others. Whichever one you choose to open will depend on your goal, what you can afford and when you need to access that money.
Top tip: Continually review your savings plan to see how you’re progressing towards your goal. Perhaps you can occasionally add an ad-hoc amount to your savings or see whether there’s space in your budget to add more to your savings.
Disclaimer: This article is solely intended for information. It does not constitute financial, tax or investment advice or recommendation. Please speak to a financial advisor or registered financial professional before making any financial decision(s).
Standard Bank, its subsidiaries or holding company, or any subsidiary of the holding company and all of its subsidiaries make no warranties or representations (implied or otherwise) as to the accuracy, completeness or fitness for purpose of the information provided in this article or that it is free from errors or omissions.
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