The Key to Creating an Effective Savings Plan

The easiest way to achieve your short and long term goals is to manage your money wisely. Whether your end goal might be a new car, tickets to Bali at the end of the year, a deposit on a home, or bumping up your retirement fund, creating a good savings plan is the key to obtaining financial success.

Now is no better time to knuckle down and start saving, with these tips to help you be savings savvy.

Short term vs. long term

The first step to beginning a savings plan is to determine what kind of goals you are aiming for. This means you need to know what you want. Whether it be a short term or long term goal, consider the cost and set a target date to get an idea of the amount you must save each month to achieve it.

It is important to set yourself a realistic time frame to achieve your goals so that you don’t put yourself under pressure to meet a target that doesn’t fit your circumstances. Compare your monthly target with your current rate of savings. If they don’t match up, you can either adjust it or start to think about cutting unnecessary expenses from your budget. Factor in the cost of luxuries and experiment with the amount of money you could save by cutting those things out.

Adopt a committed savings mindset

Studies have shown your mindset can affect how you behave and how you build skills in your lifetime. Developing a positive attitude towards regularly saving money can reinforce the habit. After you have developed a suitable timeframe to save, set a budget and commit to sticking to it. While at times it's nice to treat yourself for the hard work you have put into saving, it is important to think about the bigger picture: achieving financial goals can deliver a better source of lasting intrinsic satisfaction compared to buying takeaway on a Friday night.

Understand the significance of Compound Interest

The earlier you start saving, the faster you get to see your seed grow. Compound interest is interest an investor earns on an original investment, combined with the interest earned on the interest that has accumulated over time. It may sound confusing, but it’s quite simple. The sooner you put money into a savings account with a high rate of return, the sooner you get to see that amount multiply. Understanding how to harness the power of compound interest is a powerful tool to help increase your savings.

Invest your raise and unexpected lump sums

It is always fulfilling when you receive a raise at work. While it is great to celebrate by splurging your first updated pay check on yourself, think wisely and factor in how the income increase can help in achieving your goals. Instead of using it to buy unessential goods, push it towards your savings account. The same goes for any lump sums you may receive, for example; a hefty tax return. Being proactive with extra income can be used to reach your goals sooner and cut your target time in half.

An effective savings plan comes back to your financial circumstances. No plan is the same, with each tailored especially to your ability to reach your targets in a time frame of your choosing.

At Select, we offer no-obligation, quality, and free advice to help you achieve your financial goals. Our friendly brokers can provide you with up-to-date information on a range of products and how they can suit your circumstances. To arrange an appointment, call us on (08) 9417 3399.

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