When creating a savings plan, consider these questions:
- How much can I save each month after essential expenses?
- What goal am I saving for?
- How quickly do I want to reach my goal?
- If you haven’t yet, write these answers in Module 2: Creating Your Financial Goals and make an action plan for each goal.
Best Practice
Did you know? You can have multiple checking and savings accounts! Having multiple accounts tied to different types of goals may help you save money and stay organized.
Here are a few additional uses for checking and savings accounts to consider:
- One Savings Account: Keep all your savings in one place for simplicity. If you don’t prefer multiple accounts, you can lump all of your savings into one place.
- Emergency Fund: Setting money aside for emergencies like car repairs or medical bills is a great financial move. Consider setting up a separate account to avoid mixing funds with your regular savings.
- Periodic Expense Account: This account can be a saving or checking account, but the funds are specifically used for expenses that happen periodically, such as quarterly, biannually, and annually. Examples include heating costs, registrations, taxes, insurances, etc. This concept may also be referred to as a “sinking fund”.
- Big Purchase Account: For large future expenses such as a down payment, wedding, or new roof.
- Fun Money: A fund for vacations, concerts, or hobbies—spend guilt-free within your budget.
- Holiday Club: Save a set amount regularly for holiday shopping and celebrations.
How to Use a Periodic Expense Account:
Step 1: List the Expenses You’re Choosing to Pre-Save.
For example:
- Heating fuel or electricity
(if billed seasonally) - Registrations
- Taxes
- Insurances
- Memberships or subscriptions
- Etc.
Step 2: Calculate the Total.
- Add up the estimated annual cost for each expense.
- For example:
- Heating: $2,400
- Registration: $120
- Taxes: $1,800
- Annual Total: $4,320
Step 3: Divide Annual Total by 12 Months.
Take the total and divide by 12 months to know how much to save in your monthly budget. For example:
$4,320 ÷ 12 = $360 per month.
Step 4: Separate the Money.
Consider putting this monthly amount into a dedicated account. This ensures the money is ready when those bills arrive.
The Power of Automating Your Money
Now that you have a defined budget, clear goals, and strategies to save money, you may want to consider how to "automate" these new habits.
Setting up automatic savings or extra debt payments has big benefits:
- Consistency: Automatic transfers make sure you save regularly without having to think about it.
- More Intention: When money goes straight to savings, you’re likely to save more.
- Saves Time: No need to move money yourself—set it up once and forget it.
- Better Habits: You save first, then spend, which helps you stay on track financially.
- Reach Goals Faster: Regular deposits help you build an emergency fund, plan a vacation, or save for retirement.
- Peace of Mind: Knowing your savings grow automatically reduces stress and gives you security.
Set up an automatic funds transfer on your online banking or mobile banking, visit your local branch, or contact customer support.
Best Practice
By automating aspects of your finances, it may help you pay down debt, save money, and reduce time spent on your finances.
Action Steps You Can Take Today
- Review your financial goals
- Open any accounts needed to achieve your financial goals
- Establish an automatic direct deposit or automatic transfer into your established accounts
- Track your progress to stay motivated
Continue Your Financial Wellness Journey
Next Module: Protect Your Assets
Previous Module: Build Your Credit
Overview: Your Financial Wellness Journey