What do most budget programs do for savings?
They make a category called savings or else set up some individual categories like travel, new vehicle or appliances.
Many know mention Saving First which means putting funds aside right away so they aren’t even seen so they are not looked at (which means not spent).
They also mention setting up bank accounts that automatically move funds from the account the income comes into and move it to another account that is safe from prying eyes.
Some have calculators for some categories.
These are all good ideas, but we know that people are still very poor savers overall.
Is there a better way to budget?
At YBP we go two steps further in an effort to help people save better.
YBP put Savings right after Income therefore people will tackle the idea of savings before spending.
YBP also has calculators to create savings plans. The calculators are imbedded right in the Savings section of the Budget Program.
Little things like this should definitely help people
Have a Plan
If you truly want to get away from spending before you actually have the money for it, it is important to have a plan for saving now in order to buy things later. Each individual or each family will have different goals. Their small ticket goals (shorter term goals) and big ticket goals (longer term goals) items will differ. For one person buying a big screen tv could take two years' worth of monthly savings while another person may need only three months of savings or none at all.
No matter how much you earn, the simple principle to follow is: Save your money before you spend it.
Or the other way around: Don't buy stuff if you haven't budgeted or saved for it.
If you haven't done so, yet, aligning your finances according to this principle might be painful for a while, because you haven't saved up for something that you are so used to just buying. Granted, saving for goals takes longer term thinking, planning and a bit of patience and self-control. But once you hit the threshold of being able to spend within your means, without the stress of high credit card debt to spoil the fun, you might realize that it was well worth it.
Saving Goals
When planning your savings goals, there are two main categories of savings planners you will encounter. The two differ in their complexity. The amount to save for buying a new mountain bike is a lot easier to define than a wedding with dress, rings, party, honeymoon, hotels, etc.
Small ticket goals
As a rule of thumb, small ticket goals can be reached within 1-12 months. As mentioned above, they are also usually easy items to figure out. The cost is the cost with very little else to think about. A TV costs may be $500 plus taxes and maybe a new set of cables. Let's assume $600 total. Save $100/month for six months - there you go, you can now buy new TV.
Big ticket goals
Big ticket goals usually take much longer to save for and can be much more complex. Saving for a vacation may include transportation, accommodation, food, entertainment, insurance and souvenirs. In the case of further education, there could be school costs, plus books, computers, rent, transportation, loans and scholarships. Plus, the schooling lasts over a much greater time period. Retirement, the ultimate big ticket goal, takes a lot more planning. It is so far off into the future that all sorts of things could happen that would affect the plan. New kids in the family or loss of a job that had a pension attached to it. Such things as company pensions, how well investments appreciate, any tax implications, an inheritance possibly and will there be any assets to sell off (example: sell off a home - downsize to a condo - put the remaining funds towards retirement). All of these goals take much greater planning and much longer to save for.
Your Budget Plan Savings Goals
Making these plans can often be very tedious. Have your really thought of everything? How do you incorporate these plans into your budget? What happens when plans are changing?
We at Your Budget Plan have developed a set of savings goals for you that help you on your way to financial freedom. All of them can be incorporated into your budget so that you know where you stand every month and can watch how well you're doing.
Try the Planners for free!
I would take this paragraph out - The savings goals and Marketing Message are enough. Don't we have a place about accounts somewhere? If not, make a blog article out of it by elaborating a little bit more!
--->Where to save the funds?
After figuring out the desired goals and coming up with amounts to save, where should the funds be saved? Firstly, the funds should be 'automatically' saved. That is the funds should go into the bank then the bank 'automatically' saves the funds into another account. These funds should not be touched under any circumstances short of a super emergency. If they are touched it takes a lot to resave the funds.
As the funds grow, some of the funds should be invested into other forms of savings with higher returns. This will help offset inflation as well as hopefully making the pot grow quicker and better. The investments will depend on the duration of saving and the various amounts that will be needed when the time comes to spend them. Always keep some funds in cash as invested funds will go up and down in value. Investing the funds will depend on the investment knowledge and strategy the family sets out. Some of the funds should be put into GICs or bonds while longer term savings funds can go into ETFs or mutual funds. The shorter the savings period, the safer the types of ETFs or mutual funds. The longer the savings period the slightly riskier the ETF or mutual fund can be. This kind of planning does require someone knowledgeable in financial planning.
There is a series of+++ 'How to'+++ articles to help plan for various big ticket items or long term savings plans.