Making a Savings plan

A savings plan is a critical tool for managing money to meet short, medium, or long term financial goals.  To make a savings plan, follow the steps outlined below:

  • Set savings goals.
  • Figure out how much you need to save over what period to meet your savings goals. Set a savings target.
  • Figure out how much you are earning over this period, the regularity (or irregularity) of your earnings, and how much you can expect to save regularly.
  • Identify which expense you can cut back (for example, video rental, cigarettes, or tea breaks) and reallocate this amount to your savings.
  • Decide where you will save. Identify places to save, available savings products, and their pros and cons.
  • Plan how much and how often you will save. For example, you could put a specified amount aside in an envelope when you are paid or at the end of each business day and keep it in a safe place until you can take it to the bank.  Go to the bank on a set day of the week or month. If you are a wage earner and your employer is linked to a bank, consider a deduction from your paycheck that is automatically deposited into your savings account.
  • Keep track of your savings. Monitor progress towards your savings target regularly by checking the amount you have saved and how close you are to your goal. Check bank statements, passbooks, or other sources of information on your savings.

Rules of Thumb for Savings

While basic principles of money management can apply to everyone, decisions to save or consume depend very much on your level of income, access to loans, access to appropriate savings products, and personal discipline. Nevertheless, there are several rules of thumb that you can use to guide decisions about savings and consumption.

  • Save as much as you can as soon as you can. The more you save, the better off you’ll be.
  • Save as you earn, One by one makes a bundle.
  • Try to save 10% of your income even if you don’t have a specific purchase or investment for which you are saving.
  • Pay yourself first; put 10% of your earnings aside for savings before you do anything else. If you can’t afford 10% right away, start with less, but save something.
  • Calculate how your money can grow over time if you save regularly in an account that earns interest.
  • Don’t carry a lot of cash—avoid the temptation to spend it!
  • Spend less to save more. Cutting down on consumption, such as alcohol and on buying new clothes for every function, enables you to save more money to provide for you and your family’s future
  • Spend carefully. If you purchase big items, consider how much you could resell them for. Look for opportunities to save money by bulk buying of non-perishables.
  • Pay off your debts. Some people recommend paying down your debt before you start to save; others recommend saving even while paying down debt because it is important to begin building assets as soon as possible. This choice will depend on individual priorities, situation, and means. Total household debt should not exceed 36% of household income. While people sometimes get into “debt trouble” by borrowing unwisely, they never get into “savings trouble”.
  • Savings are the best way to pay for day-to-day costs like school fees, clothing and medical charges. It is better to save for such expenses than to borrow. For example, if you start saving for your children’s education early enough, you may not need to take an education loan or borrow money from a friend to pay fees.
  • Keep three to six months of living expenses in an emergency fund at all times. It can be used in case of job loss, an unexpected illness, and to meet other emergency needs.  An emergency fund will reduce your anxiety.
  • Keep emergency funds in a separate account. Open two savings accounts—one for emergencies that is easy to access and doesn’t have any withdrawal penalties, and one for savings for other goals that are harder to access (and therefore less tempting to withdraw the money). Keeping some savings “out of reach” is important.
  • Savings are very helpful in addressing unexpected or unforeseen problems such as illness, accidents, unemployment, robbery, drought, funerals, too much rain that destroys crops etc. In such situations, your savings can help you as you recover. Make sure that you keep the money for emergencies. If you ever have to use part of your emergency fund, top it up again as soon as you can.
  • Find savings products that match your savings goals.
  • Save for special events. Have a savings account or a small tin or box to save for luxuries such as birthdays, a wedding ceremony or holidays. You can plan for this and hence save over a long period.
  • Encourage your children to save. Parents should teach children to start saving for a purpose while they are still young. This helps children to understand the value of money and to develop a savings culture at an early age. You can help a child save money in a small tin or box (piggy bank).

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