The Art of Saving: How to Create a Sustainable Savings Plan

Saving money might not often feel like an artistic endeavor, but it can truly take creativity and considerable practice to become a great saver. For some people, this habit and ability are ingrained in them from an early age through various factors, while for others, it takes great effort. Throughout this blog, I will work to answer the following question - how do you go about creating a sustainable savings plan, and what does a sustainable savings plan look like?

Understanding Sustainability in Savings

The definition of "sustainable" is "achievable" and "enduring." This means that your savings plan should be realistic enough for you to follow over the long term without feeling overwhelmed or losing motivation. If you're not currently saving money, you might not be able to build a plan that meets all of your goals immediately. Instead, start small and work at the plan in smaller increments, eventually increasing your savings amounts as you become more successful.

Key Tip: Avoid comparing your savings plan to another person’s plan. Everyone’s financial journey is unique, and what works for one person may not work for another. However, discussing your savings journey with others and exchanging tips can be beneficial.

Steps to Building a Sustainable Savings Plan

1. Assess Your Current Financial Situation

Before setting savings goals, evaluate your current financial situation. Consider the following questions:

- What are your income and expenses?

- Do you have any existing debt?

- What are your essential monthly expenses?

- How do you currently manage and check in on your expenses?

- Do you have any current Savings efforts and how effective are they?

Action Item: Create a detailed budget that outlines all your income sources and expenses. This will help you identify how much you can realistically set aside for savings each month.

2. Set SMART-RR Savings Goals

Building your savings plan around clear goals is crucial. Use the SMART-RR criteria to set your savings goals:

- Specific: Define what you are saving for, whether it's an emergency fund, a vacation, or retirement.

- Measurable: Set a specific amount you want to save.

- Achievable: Ensure the goal is realistic given your financial situation.

- Relevant: Align the goal with your overall financial objectives.

- Time-bound: Set a deadline for when you want to achieve your goal.

- Reviewed Regularly: Make sure you look back at these goals and your efforts to achieve them, if they are not in alignment updates may be needed in your goals or your actions.

Types of Savings Goals:

- Emergency/Short-Term Goals: These are funds set aside for unexpected expenses, like car repairs or medical bills. Aim to save three to six months' worth of expenses. This is a general rule and next week we are going to dive deeper into this topic.

- Mid-Term Goals: These could include saving for a down payment on a house, a new car, updated furniture, home improvements, or a family vacation. These types of goals are going to be developed around a 2-5 year outlook from your date of writing the goal.

- Long-Term Goals: These are for major future expenses like retirement or college funds.

Action Item: Write down your goals and place them where you can see them regularly to keep yourself motivated.

3. Determine Reasonable Savings Amounts

Once you have your goals, decide how much you can save each month. Consider the following:

Savings Ratios: A common guideline is the 50/30/20 rule—50% of your income for needs, 30% for wants, and 20% for savings and debt repayment. Adjust these percentages based on your situation. Typically this percentage is going to be based on your take-home or net pay. If you can build your savings percentage off of your gross pay this will serve you well in the long run.

Start Small: If 20% seems too high, start with 5% or 10% and gradually increase it as you find more room in your budget. If a percentage of income seems too high start with a more attainable goal like getting your car insurance deductible amount in a savings account within a certain amount of months.

An Example of a SMART goal for this goal –

“I will save a total of $500 in the next 10 months to cover my insurance deductible by adding $50 a month to my savings account starting in Aug 2024.”

If you find that you have a room in your budget to start a heftier savings plan then add up the amounts that you need to save each month to reach your goals and add the amount to your savings account. Some people find it helpful to have more than one savings account so that they can separate the funds for each goal that they have and not make a mistake in spending their savings for the wrong purposes.

Action Item:** Automate your savings by setting up automatic transfers to your savings account each payday. This ensures that you consistently contribute to your goals. You can do this by reaching out to your HR department and asking if you can have your paycheck split between two different accounts, or you can set up an Automatic transfer on payday from your checking account to your savings account.

4. Monitor and Adjust Your Plan

Regularly review your savings plan to ensure it remains aligned with your goals and life changes. Your financial situation might change due to a new job, increased expenses, or changes in financial priorities.

Think about when you receive a bonus or raise adding that amount into your savings account before you get used to spending it.

Reward yourself and celebrate your efforts. I like taking my clients through a calculation to determine their savings rate when we first get started together, then as we continue to work together we look at changes to their savings rate percentage and their financial progress numbers. Remember that each step you take to make your financial stress become your financial success is progress let's be sure to celebrate and encourage ourselves.

Action Item: Set a monthly check-in with yourself (if you have a partner with them too) to review your savings progress and make adjustments as necessary.

Creating a sustainable savings plan is both an art and a science. It requires careful planning, discipline, and the flexibility to adapt to changing circumstances. By setting realistic goals and maintaining consistent savings habits, you can build a strong financial foundation that supports your long-term financial well-being. Remember, the key is to start small, stay consistent, and celebrate your progress along the way.