The average American has about $6,000 to save each year. That’s what the medium income minus the medium yearly expenditures come out to.
That doesn’t sound like a whole lot, does it? You might have goals that are a little more aggressive than that. What can you do if your savings goals outstretch the average American’s ability to save?
You simply need to craft an aggressive savings plan. We’re going to talk about ways to create a savings plan that works fast, giving you the tips and tricks you need to start seeing some real progress in your bank account.
We hope the ideas below help you save money and get in a position to move forward in your financial life.
Beginner’s Guide to an Aggressive Savings Plan
The first thing to do is establish a goal. You might also want to establish a set of goals that you can achieve progressively.
These goals don’t have to be exact, but there should certainly be an outcome that they lead to. For example, saving money to be able to retire at 40 requires that you reach a particular financial goal for a specific end. Saving money without a clear goal in mind doesn’t typically yield results.
So, try to write out your financial goals and attach specific dollar amounts to them. You should also write down what those goals mean when it comes time to enjoy the fruits of your labor.
An example of this could be “Save $40,000 in the next 6 years. Invest 50 percent of savings into a retirement plan. Use the remaining savings for a down payment on a home at the end of 6 years.”
Your goal can be whatever you need it to be. All that matters is that you have a specific goal and it’s the goal that you want.
Chunk Your Goals Backward
Now that you have your goal in mind, it’s time to see exactly how much you’ll need from each paycheck to make it happen. Aggressive savings plans typically require a percentage of each paycheck to be achieved.
The process of figuring this number out is easy. Take the total amount of money you need to save and divide it by the number of paychecks you’ll receive before that day comes. So, if you want $50,000 in ten years and you get 25 paychecks each year, your equation is 50,000/(10×25).
When you do this, you realize that you only need to take $200 from each paycheck to achieve your goal. Naturally, this is easier said than done. Things come up, and it’s really easy to justify taking money from savings to pay for things that you might want or need.
When needs come up, your savings are there to support you. That said, we often conflate our wants and needs and take money out of savings unnecessarily.
One way to avoid doing this on a regular basis is to pay yourself first.
Paying Yourself First
One of the best ways to save money is to set it aside before you start worrying about other finances. In this way, you pay yourself before you give money to the other institutions or individuals who you owe money to.
Pay yourself before paying the rent, buying groceries, or anything else you need to do. A key exception (of course) is when someone else is dependent upon you.
The thinking here is that you’ll find ways to take care of your urgent bills. We typically have a lot more wiggle room in our budgets than we give ourselves credit for, and we only realize how much extra there is when we’re forced to be really lean with our budgets.
Most of that excess room comes in the form of excess spending and frivolous purchases that we don’t register at the end of the month. We wonder where all of our money is going and how we’re still so tight each month.
Forty trips to the gas station before and after work, a few extra purchases online, and one particularly large binge on Amazon could definitely go under the radar over the course of the month.
When you pay yourself first, you take all of that money and just tuck it away. You won’t be able to afford the same excess items you once did, but you can swap those out for your financial goals.
Create a Savings Plan Based on Income
Your financial goals are a great place to start when it comes to building a budget. That said, your financial goals can be limiting when it comes to the scope of your savings plan.
Instead of starting there, think about starting with a look at your finances. Examine the income and expenses that you receive and need to make. How much money do you need to spend each month?
What’s the bare minimum that you could spend while maintaining your quality of life? What’s the least that you’re comfortable spending? When you strip things down to the bare essentials, you’re left with the reality of how much you could save in your current situation.
If you identify your baseline expenses, you can create the most aggressive savings plan. The extreme would be to take all of your excess money and put it into savings.
Managing Your Expectations
Just because you could save all of your excess income doesn’t mean you should try. That’s a lot to ask of yourself, and you might find that you have to remove a lot of the important things in your life.
For example, you’d delete Netflix. You’d stop going out to eat with your coworkers. You and your partner would have to spend a lot of nights at home doing the same old thing for the next ten years while you reach your savings goals.
The point is that it’s unhealthy to push yourself to the extreme in this situation. There’s certainly a way for you to achieve reasonable goals in a short amount of time without denying yourself basic human pleasures.
The key is finding things that you’re spending money on unnecessarily. More specifically, what are the expenses that you don’t need and don’t enjoy? Enjoyment is a crucial piece of this puzzle.
Things that you truly enjoy and are good for you are worth spending reasonable amounts of money on. Things that are bad for your health and you don’t actually enjoy are not. For example, a trip to the nightclub once a week for a whopping $200 is probably not healthy.
Odds are that those trips don’t improve the quality of your life, either.
Adjusting Lifestyle for Financial Goals
Now, some of you may be thinking “there’s still no way I can save the money I want.”
So long as your goal isn’t to save an exorbitant amount of money in a short period of time, we think there are still ways you could trim the fat and increase savings. Now, some people might absolutely be in a position where saving is impossible.
There are jobs and housing situations that are impossible to leave or earn a living in. In those circumstances, it might be worth exploring different options are talking with financial support systems to see what needs to happen for you to move closer to financial freedom.
Some of us, on the other hand, increase our expenses unnecessarily and could save money with a few adjustments.
Living Above Your Means
You might make more money than you did five years ago, but do you feel like you have more money to spend than you did before? Do you have more savings than you did back then?
If not, you might be increasing your standard of living disproportionately as you earn more. Maybe you have a new car, a new expensive apartment, shop at the most expensive grocery store, and top it all off with new clothes.
These things are all unnecessary. It’s healthy to improve things as you move up in the world, but you do so at a cost. The degree to which you live above your means is the degree to which you’re missing out on savings opportunities.
So, if you have an aggressive savings plan in mind but it’s just out of reach, ask yourself if you can shift your core expenses like rent or car payments. If you can change or reduce the expense of those obligations, you might be able to free up a great deal of money for savings.
Financial Advice from Professionals
The best way to get a read on your situation is with the help of a financial advisor. These are individuals who can look at your current situation and give you insight into the best pathways to take.
From investments to savings plans, professional help will give you a clear look at the realistic financial future you have.
Want to Learn More About How to Save Money?
We hope our look at creating an aggressive savings plan was useful to you. There’s a lot more to learn, though. We’re here to help you get all the information you need.
Explore our site for more financial advice, savings tips, and ideas on how to create a savings plan.