In general, the purpose of a savings plan is to help you save for a particular object, event or goal. Maybe it’s for a pair of shoes, a car or a down payment for a home. Or maybe it’s a designated emergency savings account that you put aside several months’ worth of living expenses in. Whatever your goal, you can make a savings plan for it.
How does a savings plan work?
One way to set up a savings plan is by creating a budget and allocating a portion of your income towards a designated account on a consistent basis. As you consider your goal, it can be helpful to think of savings plans in terms of duration and save a portion of your income accordingly.
- Short-term savings plan: Short-term savings plans have a timeline of zero to three years. For example, saving for a vacation or an event like a wedding.
- Medium-term savings plan: Medium-term savings plans have a duration of three to seven years. For example, saving for a down payment on a home.
- Long-term savings plan: Long-term savings plans feature goals that you’d like to achieve in more than seven years. For example, saving for retirement.
Get started on your personal savings plan
Now that you know what a savings plan is, the next step is getting started. For example, when creating a personal savings plan, here are some steps you may take when saving for a car.
- First, identify your goal: a down payment for a particular new car.
- Second, identify the cost of your goal: $5,000.
- Third, identify your timeline for your goal: two years.
- Now you can calculate how much to save each month and apply it to your savings plan: $208.33.
Savings planning tools
One thing that can help you save consistently over time is a banking feature called automatic savings. For example, if your checking account offers an autosave feature, it can help you save consistently by automatically moving money from your checking to savings account. Similarly, if your employer offers direct deposit, you may be able to deposit a portion of your check directly to your savings account, which can also help you avoid spending it when you bypass your checking account entirely.
So, do you have a goal in mind? If so, there’s no time like the present to get started on a savings plan to help you achieve it.
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