Saving money to improve your financial health is a matter of strategy. Therefore, before getting down to work, it is necessary to analyze the situation, diagnose the problems, and set objectives. These first steps will be the basis on which the future savings plan will be based.
Making a savings plan goes beyond the fact of periodically setting aside some money in anticipation of what may happen in the future. Carrying out correct financial planning allows you to manage your assets effectively to achieve the objectives that each person sets for themselves. All of this takes into account that financial institutions provide options that facilitate this task and, in addition, offer a return.
The sooner you start a savings routine, the easier it will be to get used to it and develop the perseverance it requires, always with flexibility and adapting the budget to the financial situation in which a person finds themselves at each moment of their life. “The habit must be created from the beginning of your working life,” explains José Antonio Herce, president of the BBVA Institute of Pensions Experts Forum. “We can do it for a multitude of objectives: a trip, advanced studies, a property… retirement, of course. Whatever you can, whenever you can. The key is precautionary savings ” (that is, savings intended to respond to uncertainty about future income).”
To carry out a good savings plan that allows people to improve their financial health and meet their goals, it is necessary to take the following steps.
How to set financial goals?
Knowing what you want to achieve is essential to avoid giving up at the first sign of trouble. “Savings plans require a lot of financial planning and discipline,” says Mauricio Iracheta, professor of Financial Markets at Afi School of Finance in Mexico. “Therefore, first of all, you must define objectives, which will depend directly on the characteristics and needs of each individual.”
Experts recommend starting with small goals and gradually increasing them over longer time frames to cover the spectrum of short-, medium-, and long-term objectives. “It is the best way to distribute income throughout our lives, both to invest in ourselves and to ensure an income when we are retired,” explains José Antonio Herce.
Control income and expenses
The savings plan should reflect the money that comes in and, above all, the money that goes out. The Chilean Financial Market Commission, through its Educa portal, recommends considering monthly fixed expenses and debt payments first and then recording less important expenses. The entity recommends paying special attention to “small expenses” that, because they are small but repeated capital outflows in the daily routine, “can cause serious imbalances in the monthly budget.”
Establish a strategy
Once you have the information, the planning part begins. First of all, if you have to reduce expenses, it is advisable to start with those that are dispensable with actions such as: comparing prices, taking advantage of sales, reducing leisure outings, reviewing the services you have contracted to check whether they are being used or not, or studying energy or telephone rates in order to consider possible savings options, among others.
As savings increase, the time will come to obtain the highest return on the reserved capital through appropriate financial products. “ Investment portfolios must be created with adequate diversification and well-defined short, medium, and long-term goals,” explains Mauricio Iracheta. “The combination of assets within the portfolio will depend on the level of risk and return that savers are willing to take.”
Benefits of a savings plan
Planning financially allows you to enjoy good financial health and have a reserve to deal with unforeseen events, but there are more advantages. “The main benefit of savings plans is that individuals will be able to meet their medium and long-term goals, without significantly deteriorating their standard of living in the present,” says Iracheta. All this, without ever losing sight of the long-term future. “ Over time, you have to change your purpose, orienting it and protecting it towards retirement,” Herce clarifies.
However, it is still difficult to convince people of the convenience of having a good savings plan. “Unfortunately, the vast majority of the population in Latin American countries is not used to submitting to savings plans in order to have a better future,” says Iracheta. “The general thinking of people in these countries is short-term and they do not foresee the setbacks that may arise .” For this reason, this expert recommends awareness campaigns, and incentives and that “financial authorities establish conditions of high competition in the financial sector so that intermediaries offer options and instruments that generate high returns for their clients .”
Rules, tricks, and methods to save money
Setting up an effective savings plan doesn’t have to be a difficult or boring task. Fortunately, there are many formulas, methods, and tricks that serve as a guide to doing so in a simple and entertaining way. Here are some of them:
50-30-20 Rule:
This is an easy calculation to set up a savings plan, dividing income according to these percentages:
- 50% for basic expenses that are essential: housing, shopping, schools, etc.
- 30% for one-off expenses that can be waived if necessary: going on holiday, doing leisure activities, etc.
- 20% for savings: the goal would be to have a financial cushion to cover unforeseen expenses and avoid surprises.
With this simple formula, it is much easier to plan your finances during times when you expect to spend more, such as during vacation time or back to school, or during an unforeseen emergency, such as a car breakdown or a medical expense.
