Our attitude toward saving money compares with our attitude toward eating healthier. We know that we should do it, but it’s not a priority. But when it comes to savings, it’s often more an issue of not knowing how to save and where to start. This is where a savings plan points you in the right direction.
Throwing money into a savings account is better than nothing, but this method eventually fizzles out. To help you devise the perfect savings plan, we’ve detailed some of the most important savings buckets to fill. You’ll find that after you check off your first goal, you’ll be more motivated to engage in an all-out savings attack.
Emergency! Building an emergency fund
When you’re having fun being young, it’s hard to imagine anything going wrong. But emergencies happen more often than you’d think. When the storm finally rolls in, you’d better have a thick umbrella to shield you.
Before you even begin to get those buckets out, you’ll want to build up a solid emergency fund. Having money stashed away for the rough times provides you with peace of mind during the good times. Experts recommend that you save three to six months of income for an emergency fund. This protects you from an unexpected event like getting laid off or experiencing a health emergency.
Short-term savings plan
The first and most reachable bucket is your short-term savings plan. This savings plan involves purchases that you hope to make in the next year or so. Because you’ll need quick access to your money, these funds should be liquid, meaning that you can easily withdraw funds when you need them.
First, determine exactly what you’re saving for, whether it’s a car, a vacation or something else. Once you’ve figured out your bucket list, you can now prepare your savings bucket. Figure out how much you’ll need by dividing the total by the amount of time you plan to save. For example:
You want a Bengal cat that costs $2,000 and you plan to save for two years, or 24 months. That means:
2000/24 = 83.3333
To have your furry friend within two years, you’ll need to save at least $83 per month.
How to save
For short-term savings plan, it’s best to use liquid investments like a high-interest savings account or a certificate of deposit. Vantage West also offers high-interest Share Certificates with varying maturity rates.
Mid-term savings plan
Many of us don’t like thinking about the future because it’s hard to imagine. You might think, “I don’t know what I’m doing tomorrow, never mind a decade from now.” But setting financial goals five or ten years ahead places your future self on solid footing so you won’t spend your middle-age years freaking out. Plus, you’re more likely to keep a nice, full head of hair.
Mid-term savings goals may include buying a home, paying for your wedding or raising a child and funding their college education. Your mid-term savings plan requires a different style of saving since you won’t need your money right away. Because of that, you can opt for less liquid options, such as money markets or equities, which deliver higher returns.
How to save
If your mid-term savings goal is years down the line, consider a certificate of deposit or money market fund. Both of these investments feature low buy-in and relatively short-term commitments. Vantage West offers high-interest Share Certificates with flexible maturity periods ranging from 6 to 60-month terms. Time your withdrawal date as close as possible to when you’ll need the money. This prevents early withdrawal fees and guarantees the greatest return.
Take time to understand the time constraints on your investments and any penalties for early withdrawals. You’ll also want to explore any associated fees.
Long-term savings plan
Once you’ve filled your first two savings buckets, it’s time to travel to the future. This step won’t require a Delorean, just some foresight, a good savings plan and some discipline. Rather than saving for a specific item or event, long-term saving means building wealth for the future. The advantage of long-term financial planning is that you can be a bit riskier with your long-term investments.
First off, take advantage of your employer-based 401(k) savings plan if available. Your employer deducts your contributions pre-tax so you’ll see a lower tax bill at the end of the year. Also, most employers offer some kind of matching program to give your investment a further boost. Not taking advantage of a deal like this is like saying no to free money. Who would do a silly thing like that?
How to save (if you’re under 50)
When you’re young, you could take on additional risk and expect higher returns by investing in equities such as stocks, bonds and mutual funds. These investments are riskier but they average better returns than savings accounts, CDs and money markets. Plus, since you’re young, you’ll enjoy the roller coaster ride of the stock market. While there will be some bad years, the stock market generally weathers the storm.
How to save (if you’re over 50)
When you’re older, you’ll want to reduce your exposure to equities in case of a stock market crash (they happen more often than you’d assume). Transfer your funds into safer investments such as an IRA plan, deferred annuity or a safe bond fund. Vantage West also offers even higher returns on their Share Certificates for higher balances, resulting in a safe, solid investment with limited maturity periods.
Saving for the future is difficult and takes time to develop good habits. Like learning any skill, it takes practice, patience and discipline to pull off. Once you instill good savings habits, it becomes second nature as the temptations to splurge fade away. Just as every bodybuilder has a training regimen, every saver should have a solid savings plan to set you on the right path.
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