15 May What to Consider When Creating Your Savings Plan
You are on the right track for your financial future. Congratulations! However, there are some crucial details to consider when creating a savings plan. Let’s quickly go over a few details so that you can better analyze how you should be saving.
Note: This article contains affiliate links. This means that if you purchase a product or sign up for a company through one of our links, Thrive Oak will make a small commission (at no extra cost to you).
What to Consider When Creating a Savings Plan
Being in debt can feel awful, but being in charge of your debt can also be great for your credit score. As crazy as it sounds, by adequately managing debt, it can boost your credit score. This can allow you to make big purchases later on, like when buying a home.
Debt can come in many forms, including student loans, mortgages, car loans, and credit cards. When creating a saving plan, it is vital to balance your savings methods with paying off your debt. It shouldn’t be one or the other; you need to do both simultaneously to achieve the best results.
When creating that balance, there are two actions that you should prioritize. First, are minimum payments. Minimum payments are the lowest amount of money that you can pay to your debt each month. Before investing in anything else, you always want to make sure that you can pay off your minimum payments. If you have the desire and ability to pay off more than your minimum payment so that you can be free of your loan faster, go you! However, be careful not to violate the terms of your contract by paying off the loan too quickly. It would be sad to be penalized for paying off your debt!
Second, is high-interest debt. High-interest debt is most commonly found on credit cards, where you pay extreme amounts of interest if you don’t pay your card off in full. If you have high-interest debt, it may be wise to pay off your debt before making other investments. If you are unsure if you should pay off your debt or invest, check out our article on the matter!
Have you created an emergency fund yet? When formulating a saving plan, you should plan to create an emergency fund! An emergency fund is for when everything goes wrong, and you need money quickly. Having one set up and ready to go will prevent you from getting a quick loan or rack up credit card debt. Once it is created, it is just going to sit there. Afterward, you can focus on investing the new money you save to develop further profit that will aid your retirement fund. Just remember, this fund needs to be at the top of your list!
Lifestyle / Annual Costs
If your goal is to retire in a mansion with a swimming pool and a private chef, you're going to have to save differently than someone who wants to retire in a forest cottage. Therefore, the first step to creating a savings plan is to figure out what you want your future to be. So, pause for a moment right now and think about it. Of course, you can change your mind later on, but take a quick second to daydream about your future to get a basic idea of where you're headed.
You know your cost of living right now, which is an excellent baseline for calculating future expenses. From here, you can determine if you think your annual costs will increase or decrease in the future. Based on this information, you can use our How to Calculate Your Monthly Expenses post to help you math out what your average annual cost will be.
We understand that the future is unpredictable; the market will change, but we don't know how yet. However, we can make general assumptions based on past economic statistical data. If you would like to get a quick look at your financial future based on where you are now, try out our quiz.
Big Life Events
Some of the greatest joys in life are the milestones that we celebrate along the way; this could include walking down the aisle at your wedding, the birth of a child, or buying your first home. As we begin creating our saving plan, we need to consider big life events. These life events can be positive or negative, but either way, they will impact your life and finances. We want to plan for these events as best we can so that we don’t have to cash in well-performing investments or take a bad loan. Here are a few big life events you may want to consider:
- Higher education
- Buying a home
- Getting married (and maybe divorced)
- Having a child
- Contracting an illness/injury
- A change in job status (good and bad)
- Caring for aging parents
There is a quote from Denis Waitley that goes, “Expect the best, plan for the worst, and prepare to be surprised.” While preparing for the worst-case scenario is never fun; it is better than ignoring the possibility altogether. Take a look at our article on How to Financially Plan for Big Life Events to formulate a solid financial plan, and then come back!
Are You Saving Enough for Your Savings Plan?
Blindly saving some money each month doesn’t mean much unless it aligns with your retirement goals. Are you saving enough? Check out our free quiz to know if you are on the right track in your monthly and annual savings. This quiz will analyze where you are at in life and where you want to end up to determine if you are on the right track.
Are You Ready?
“A goal without a plan is just a wish.” Antoine de Saint-Exupery was right on the money with this statement, and it applies to your finances as well. When it comes to saving, having an action plan will take it from wishful thinking to a successful endeavor. Start by making your action list! It might look like this:
- Create a budget
- Pay off high-interest debt
- Build an emergency fund
- Contribute to a 401(k) or IRA
- Plan for future big events
With the groundwork laid, you can take steps to make a fantastic financial future for yourself and your family. If you are not sure what to do, review the articles above or ask us a question!