Planning Savings Goal

The reason we save is to achieve something, whether it’s to go on a holiday, buy a home, retire comfortably or have enough for a rainy day, but just like anything in life, if you want to make it happen, you have to plan for it. With a savings plan, you’re creating a strategy for growing your money to achieve your dreams.

What is a savings plan?

A savings plan is a tailor-made blueprint to achieve your financial goals. It helps you establish what you need to be able to achieve those goals and how you should go about doing it. That way, you can see how much to save, which type of savings account you should consider, how long it will take to achieve your goal, and how much you can afford to put aside.

Why do I need a savings plan?

We all know that saving is important, but just saving for the sake of it isn’t motivating, and you might lose interest or start dipping into that money if you’re not reserving it for something specific. A savings plan helps you save for a purpose and outlines the road to getting there because having a clear idea of why you’re saving will help you make it a priority and stick to it so you can get there faster.

How to create a savings plan

Creating a savings plan is easier than you think. Here’s how to get started.

Step 1. Look at your budget

Knowing what your finances look like will help you prioritise where your money is going and make changes if you need to. Your budget will give you an indication of how much money you can afford to commit to saving or what changes you can make to unlock more money.

Step 2. Determine your goals

Knowing what you want to achieve will give you an indication of how long it might take. For example, saving for a vacation, big-ticket item or a wedding can be done anywhere from a few months to a few years, making them short-term goals, whereas saving enough for your retirement requires a substantially larger amount and is a long-term goal.

It’s important to be specific about your goal so you know exactly how much this goal will cost, how long it will take to get to it and whether it is a realistic and worthwhile pursuit.

Step 3. Commit to an amount

Once you know what you’re saving for, when you want to reach it and what your budget allows for, you can decide how much money you’ll be able to put away and how to prioritise your spending. Consistently saving is important because what you contribute and the rate you’re contributing at will determine how fast you’ll reach your goal.

Step 4. Decide where to put your money

With your goals and financial priorities in mind, you can see where the best place would be to stash your cash. A savings or investment account is a safe place for your money to grow, but different accounts have different intended outcomes, and some might be better suited to your needs, wants and circumstances than others. Whichever one you choose to open will depend on your goal, what you can afford and when you need to access that money.

Example

Understanding How to Plan a Savings Goal

Planning a savings goal involves setting a target amount of money you want to save within a specific timeframe. This process helps you manage your finances, prepare for future expenses, and achieve important financial milestones. A well-thought-out savings plan ensures that you stay on track and reach your financial goals.

The key concepts in planning a savings goal include:

Target Amount: The total amount of money you want to save by the end of your goal period.
Timeframe: The period in which you plan to reach your savings goal (e.g., 1 year, 3 years, etc.).
Monthly Contributions: The amount you need to save every month to reach your goal on time.

Steps to Plan a Savings Goal

To plan your savings goal, follow these steps:

Step 1: Determine your target amount. This could be for an emergency fund, a down payment on a house, a vacation, or retirement.
Step 2: Set a realistic timeframe for achieving your goal based on your financial situation.
Step 3: Calculate how much you need to save each month to reach your target amount. Use the formula: $ \text{Monthly Savings} = \frac{\text{Target Amount}}{\text{Number of Months}} $.

Example: If you want to save $12,000 in 1 year, the monthly savings would be:

$ \text{Monthly Savings} = \frac{12,000}{12} = 1,000 $

Factors to Consider When Planning a Savings Goal

Several factors influence your savings plan:

Income: Your monthly income will determine how much you can realistically save.
Expenses: Understanding your monthly expenses helps you determine how much disposable income is available for savings.
Inflation: Consider how inflation might affect the value of your savings over time.
Interest Rates: The rate of interest you earn on your savings can help grow your goal amount faster.

Real-life Applications of Savings Goals

Planning savings goals is essential for various financial milestones:

Saving for a down payment on a home or car.
Building an emergency fund for unexpected expenses.
Saving for a child's education or retirement.

Steps in Tracking Your Savings Goal

Once you set your savings goal, it’s important to track your progress:

Review your savings account regularly to ensure you're on track to meet your goal.
Adjust your monthly contributions if your income or expenses change.
Consider using savings apps or tools to monitor your progress and make adjustments.

Planning Savings Goal Calculation Examples Table
Calculation Type	Description	Steps to Calculate	Example
Basic Savings Goal	Calculates the monthly savings required to reach your target amount within a set timeframe.	Identify your target amount. Set a realistic timeframe to achieve your goal. Apply the formula: $ \text{Monthly Savings} = \frac{\text{Target Amount}}{\text{Number of Months}} $.	If the target amount is $12,000 and the timeframe is 12 months: Target Amount: $12,000 Timeframe: 12 months Monthly Savings: $ \frac{12,000}{12} = 1,000 $
Adjusted Savings Goal	Calculates the required savings after accounting for additional costs such as inflation or unexpected expenses.	Identify your target amount and timeframe. Account for additional costs or inflation that may impact the goal amount. Apply the adjusted formula: $ \text{Adjusted Monthly Savings} = \frac{\text{Adjusted Target Amount}}{\text{Number of Months}} $.	If the adjusted target amount is $13,000 due to inflation and the timeframe is still 12 months: Adjusted Target Amount: $13,000 Timeframe: 12 months Adjusted Monthly Savings: $ \frac{13,000}{12} \approx 1,083.33 $
Savings Goal with Interest	Calculates the savings goal considering compound interest earned over the saving period.	Identify your target amount, timeframe, and interest rate. Apply the formula: $ \text{Future Value} = P \times (1 + r/n)^{nt} $, where P is the principal (initial savings), r is the annual interest rate, n is the number of times interest is compounded per year, and t is the number of years.	If you want to save $12,000 in 5 years with an annual interest rate of 5%, compounded monthly: Principal (P): $12,000 Annual Interest Rate (r): 5% or 0.05 Number of Compounds per Year (n): 12 Time (t): 5 years Future Value: $ 12,000 \times (1 + 0.05/12)^{12 \times 5} \approx 15,532.51 $
Savings Goal After Unexpected Expenses	Calculates how much more you need to save if unexpected expenses arise during the savings period.	Identify your original target amount. Account for any unexpected expenses or changes in the savings plan. Apply the formula: $ \text{Revised Monthly Savings} = \frac{\text{Revised Target Amount}}{\text{Number of Months}} $.	If you have unexpected expenses of $2,000 and the original target was $12,000: Original Target Amount: $12,000 Unexpected Expenses: $2,000 Revised Target Amount: $14,000 Revised Monthly Savings: $ \frac{14,000}{12} = 1,166.67 $