Kelly Shelton

Do you have a savings plan? Do you pay yourself? Do you keep track of your spending? Are you prepared for financial emergencies? Are you planning for your future? Whether you track every expense closely, or you spend money completely without planning, there is always room for improvement!

We all want to save our money for something. Whether it's our children's education, a new home or car, a better education, retirement - everyone needs to put money aside for the future. At one time or another most people need money for all or most of the following:

     ·  Emergencies
     ·    Buying a Home
     ·  Retirement
     ·    College Fund
     ·    Children's Weddings
     ·    Vacations
     ·    New Car
     ·    Financial Freedom

One of the most basic, but crucial steps in building a good savings plan is to start tracking your expenses.  Think about the money you bring in and compare it to the money you're spending.  What is different between wealthy people and most others? Wealthy people understand the powerful principle of paying themselves first and they apply this principle consistently in their lives.  They save and build their wealth while reducing their debt.

In a healthy savings plan, you should be "paying yourself" or saving 20% of your income.  In other words, save or invest 20% of the money you make instead of spending it on more expenses.

What is compound interest?
Are you paying interest or earning it? Did you know the more money you invest each month in savings - the more it earns for you? It's called compound interest, and the secret is in putting the power of interest to work for you. It's called "compound" because you earn interest on your investment and interest on your interest… your money compounds and builds on itself! The more you save and the longer you save it for, the greater it grows.

With the power of interest on your side you can move quickly on your journey to financial health.  Saving only $100/month, your interest earned went from $3,528 in ten years, to $17,103 in twenty!  Now that's putting your money to work for you.

What if you save as little as $100, or as much as $300 per month?  Compare ten and twenty years of savings on the chart below.  You'll notice the time and your investment only double in size, but your interest earnings increase nearly five times!

Double Your Money… with the Rule of 72!
The Rule of 72 shows how long it will take your investment to double, depending on the length of time and the interest rate.  You can calculate the time needed to double the value of an investment by dividing 72 by the annual interest rate.  For example, an annual interest rate of 8%, will double an investment every nine years.

For a specific time frame to double your money in, you divide 72 by the number of years to get the interest rate needed to meet your goal.  For example, to double your savings in 12 years, divide 72 by 12 and discover you need an interest rate of 6% to meet your goal. It's called the Rule of 72, and it works!

There are 4 major steps to a sound, balanced savings plan:

1. Save $1,000 for emergencies
   This is the minimum you need in your "emergency fund." This is the fund that will keep you from using credit cards when money is tight. Also, if you dip into this fund, replace the money as soon as possible so it's there when you need it!
2. Pay off your debt
   Paying off all your credit card debt is the best way to begin building your wealth. Every penny you have to pay in interest from a credit card or other debt takes away from your real savings plan!  Once you have paid off your credit card debt, take the same amount of money and put it into your savings.  This helps you build your Security Fund quickly.
3. Build Your Security Fund
   Once you have $1,000 in your emergency fund and have paid off credit card debt, you need to develop your security fund. Basically, it's a fund that will cover 6 months of your basic needs such as food, shelter, clothing, car payment and insurance, and utilities. It's not meant for vacations! You should pretend it's not even there until you really, really need it.
4. Build Your Wealth
   This is the longest step. If you've taken the first three steps, then you're ready to begin building the wealth that doesn't lead to more debt, or more unplanned spending, but to financing your dreams!

Make it Automatic
Now that you know the 4 Steps to Saving make it automatic by setting up automatic transfers and drafts to the savings vehicle of your choice.  Set it and forget it.  Automating your savings plan and forgetting about the money that is going to your savings is the easiest way to be consistent and disciplined with your savings plan. 

Now what about the bills you get every day in the mail? Don't get discouraged.  A positive outlook and a balanced savings plan can empower you to overcome your financial obstacles.  And don't forget about compound interest!  With your new plan in place, you'll be pleasantly surprised at how good it feels to watch your debt (and your worries) disappear.