A year may seem like a short period of time, but you can accomplish a lot, including developing a one-year savings plan that can help you hit some significant financial goals. A plan that lasts 365 days can give you, as an earner, the opportunity to save and feel a sense of accomplishment.
In other words, a year from today, you could be richer than you are now or potentially have a better emergency fund. Or, if you are diligent, you may be on your way to funding a European vacation or finally redoing that dated bathroom. Learn the how-tos.
Key Points
• To create a 1-year savings plan, define clear, specific financial goals to prioritize and save effectively.
• Track all expenses, fixed and variable, for accurate budgeting.
• Automate savings to avoid spending intended savings.
• Regularly review progress and adjust budget as needed.
• Break goals into smaller, manageable milestones for motivation.
Why You Need a One-Year Savings Plan
Before you even glance at your budget, it’s important to get clear about exactly what you’re saving for. Creating a specific objective can give you the information you need to create a solid plan to make it happen — it might also help motivate you to stick to that plan once you’ve made it.
For a one-year saving plan, consider factors like your income and current cost of living to settle on something that will likely be achievable in just a year.
The Importance of Setting Clear Financial Goals
Setting clear financial goals allows you to prioritize properly, save responsibly, and achieve your aspirations. It’s important to be specific about your goals. For instance, saying “I want to save for the down payment on a house someday” is very different from committing to having $100 per paycheck automatically transferred into a high-yield savings account.
You may be familiar with the idea of SMART goals — that objectives are most easily met when they’re:
• Specific
• Measurable
• Achievable
• Relevant
• Time-bound
In the world of yearly savings plans, that means coming up with a specific dollar figure for your goal and making sure it’s relevant enough to your life to keep you motivated.
• You probably also want to consult your earnings and expenses to ensure that it’s a realistic goal; it’s going to be a lot harder to save up $5,000 if you’re making $30,000 than it is if you’re making $90,000 or more. (You’ll learn more about budgeting and cuts in just a second.) Divide your total goal by 12 to see how much it would require you to set aside each month, which will give you better insight as to how achievable it really is.
• Once you’ve got your goal worked out, write it down. Studies have shown that you’re more likely to reach your financial goals if you take this simple action, so it’s worth picking up your pen!
Decide What are You Saving For
A vital step in the saving process is deciding what you are saving for. It’s not necessarily just one thing. Many people sock away cash for different purposes and in separate accounts. Often, these are for a mix of short-term and long-term goals.
Short-Term vs Long-Term Savings Goals
For instance, maybe you want to accumulate cash within a year for the following reasons:
• A summer vacation
• A down payment for a new car
Those are short-term goals. Examples of other dreams you may be saving for simultaneously could include:
• A down payment (or significant portion thereof) for a new home
• Long-awaited home improvements
• Your child’s education
• Your own retirement
These are longer-term goals, ones which you may not expect to realize for, say, a number of years or perhaps even decades from now.
• A vacation you’ve been dreaming of for years (pending pandemic complications, of course).
• A down payment for a new car.
• A down payment (or significant portion thereof) for a new home.
• Long-awaited home improvements.
• Putting extra money away for retirement.
Steps to Build a Successful One-Year Savings Plan
Now that you’ve got a goal or multiple goals in mind, you need to figure out how to execute your savings plan, focusing on the year at hand.
Start with Your Existing Budget
You can’t make any big changes to your finances if you don’t know what they look like in the first place. And that means the first step toward revamping your budget is to take a closer look at how it looks right now.
If you don’t have a budget yet, there are many different budgeting methods to consider. Most will benefit from you taking a month to track exactly where all your money is going.
Be sure to include both regular, fixed expenses, like rent and insurance, as well as more flexible, discretionary spending like dining out and entertainment. Be brutally honest. Tacking every cent of fixed vs. variable expenses will give you the best chance at figuring out how to spend less.
Which leads us to our next step…
Get Creative with Budget Cuts
As you work on your 1-year savings plan, remember that there are really only two ways to save money: Make more of it, or spend less of it. And while asking for a raise or starting a side-hustle might be smart moves, you may only have so much leeway with your boss and time in your day. In other words, you likely have more control of how much you spend than how much you earn.
There are simple ways to cut down monthly expenses and save money daily. For instance, could living without streaming services be possible? Or could you quit dining out for one month and then vow not to buy any new clothes the next? A challenge like that can engage some people’s competitive spirit.
Even without these measures, how can you dial down your own living expenses? You might quit buying overpriced convenience foods or find ways to get creative with ramen. Maybe you can start doing your own oil changes rather than taking the car in for service. Think of this as an opportunity to learn some new life skills while also stashing some extra cash. It can help propel you forward on your annual savings plan.
Regardless of how you get there, your goal is to be able to set aside the monthly amount you’ll need to meet the one-year savings goal you wrote down and pinned to your bulletin board. So get out your calculator, and don’t be afraid to get creative.
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Prioritize High-Interest Debt
A good way to free up money for savings is to reduce your high-interest debt (typically credit card debt). This way, the money you are spending on interest disappears and you can put those funds toward your goals.
There are a number of ways you may be able to pay off your debt, including:
• The avalanche method, in which you focus on paying off the highest-interest debt first while making minimum payments on your other accounts
• The snowball method, in which you focus on paying off the smallest debt first while making minimum payments on other debts
• A debt consolidation loan, which is a form of a personal loan that allows you to combine multiple credit card debts into one more convenient payment, potentially at a lower interest rate.
• You might get a balance transfer card, which will allow you to pay 0% interest for a period of time, during which you can focus on eliminating your debt.
Make a Plan for Your Money
No matter how much money you save, it won’t go as far as it could if you just stash it under your mattress. Figuring out where to put your savings is an important step in your planning.
Different kinds of accounts are used to help individuals save for different goals.
• For example, a long-term goal like retirement may be best suited for an investment vehicle like a Roth IRA, which can offer some tax advantages. (Keep in mind that investments are not insured and carry risk.)
• For shorter-term goals like starting an emergency fund, an account that offers more flexibility and has fewer restrictions, like a high-yield savings account, may be a better option.
Recommended: Savings Calculator
Keep it Simple
Having a plan is one thing. Sticking to it is another. But if you keep a simple savings plan, you’ll stand a much better chance of actually making it work.
For instance, automating your finances by setting up recurring transfers can direct a portion of each paycheck into your savings account. This makes saving seamless — and ensures you don’t get stuck in that all-too-familiar situation at the end of the month where you accidentally spent what you intended to set aside.
And building in systemic cuts that you don’t have to think about (like ditching some monthly subscription services, for example) can be a lot easier than poring over the coupons that have flooded your email inbox and may just entice you to spend more.
Recommended: Money Management Guide
Tips for Staying on Track With Your Savings Plan
Regularly Review Your Progress
Given that you are implementing a yearly savings plan, it can be wise to check in frequently on your progress. Reviewing your progress at least once a month can help you see how much you’re saving and tweak your budget if needed.
Also, your financial institution, whether you bank at a traditional or online bank, may offer tools to help you track your money. See what they have that could help in your savings journey.
Automate Your Savings
As mentioned above, having money whisked out of your checking account into savings can be a valuable way to make the process seamless and effort-free.
You don’t need to remember to make a transfer, nor do you see the money sitting in checking, possibly tempting you to spend it: That’s the beauty of automatic savings.
The Takeaway
As with most money goals, embracing a 1-year savings plan is going to take some planning and energy. But by being clear about your aspirations, breaking them down into manageable chunks, and having the right banking tools and partner to help you make progress, you can likely be on the road to success.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
FAQ
What are common challenges in sticking to a savings plan?
Common challenges to sticking with a savings plan include not having budgeted well (and therefore running out of cash for essentials), not automating the process, and experiencing unexpected expenses. These and other factors can derail a savings plan
How much should I aim to save in a year?
How much you should aim to save in a year depends on a variety of factors, such as your income, expenses, and cost of living. That said, the popular 50/30/20 budget rule recommends that people spend 50% of their take-home pay on necessities and 30% on wants (discretionary spending), and 20% of their earnings should go toward savings and additional debt payments. That can help you determine the right amount to save.
What’s the best way to track my savings progress?
The best way to track your savings progress will likely be a personal decision. Some people like to check in with their money (say, by a banking app) daily. Others like to sit down monthly or quarterly to review where they stand. There are also a variety of tools that can highlight your savings progress and even gamify it. See what your financial institution offers, or you might consider third-party options.
How do I adjust my savings plan for unexpected expenses?
When unexpected expenses occur, you might use funds in your emergency fund. If so, you will need to earmark money to gradually rebuild what you deducted. Or you might temporarily lower the amount you are saving in order to cover the costs that cropped up and then return to your previous level of savings at a later date.
How can I stay motivated to reach my savings goals?
You can stay motivated to reach your savings goals in a few different ways. First, breaking down goals into smaller, manageable chunks can help you see your progress, which can build confidence and motivation. You might also celebrate your successes in a low-cost way or let a trusted friend or family member know that you’ve hit a goal so they can offer congratulations. In general, having a savings buddy to encourage you can be a smart step.
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