The sooner you start saving, the better. Even if you have debt to pay off, it’s really good to save a little every payday so that when the unexpected happens, you have some breathing space … and you won’t have to take on more debt.

You may have heard that you should have three months’ pay tucked away for emergencies. That’s way too daunting for many people. The key thing is to regularly put a small amount away.

Three Steps to Help You Create a Savings Plan

1. Prioritise what to save for

It’s important to set specific and achievable savings goals.

Make a list of what you’d like to save for - e.g. saving for a car upgrade (it will be a need at some point), a new TV (a want). It’s best to put ‘needs’ at the top, ‘wants’ below – there’s a big difference!

For each goal on your list, write down:

  1. When you need or want it by
  2. What the most probable cash price will be

2. Calculate how long / how much to save

To help you refine your list further, starting with the savings goal at the top of your list:

Work out how long it will take

Divide the cost, by the regular payment amount you would make. This tells you how many weeks or months it will take you (depending on how often you would pay/the frequency of the automatic payment you would set up).

This also clarifies which savings goals are short (one month) / medium (2-12 months) / or long-term (one year or more).

Work out how much payments need to be

If you have a set date in mind to reach a savings goal, divide the cost by how many weeks or months you have to save up.

Can you afford to save that amount? If not, you could cut out some non-essential expenses, look at ways to earn more, and/or adjust how long it will take to save up. NB: if you can’t afford to save for it, you probably can’t afford credit or loan repayments for it either.

Do you need to change/re-order your list before moving onto Step 3?

3. Action your Savings Plan

Set up a separate savings account (or multiple savings accounts) with the highest interest rate and lowest fees possible.

Set up an automatic payment into the account/s – ideally, to go out as soon as your pay’s gone in, or if possible, taken straight out of your pay. Think of this as paying yourself first.

To avoid non-essential spending, just take a budgeted amount of cash when you go out - leave credit and EFTPOS cards at home.

Use a debit card rather than a credit card, to pay online: you can only access the available balance in your linked bank account (don’t link it to a savings account though).

If you get extra money from time to time, e.g. pay rise, tax refund, you sell something - aim to save at least some of it.

To make it more likely you’ll hold yourself accountable, you could tell friends and family about your most important saving goals.

There are also online tools, calculators and mobile apps you can use to track your budgeting, spending and saving.

Start Saving Up for Things You Want

To help you avoid debt by saving up for spending, Love My Money has simple yet powerful online tools, calculators and Journeys, including the ‘Saving Up for Spending’ Journey.

Find out how you can have a better relationship with your money: