How to prioritise your savings plan

Last updated on 12th December, 2017 at 05:11 pm

We all have savings goals, but the difference between achieving them and having nothing more than good intentions ultimately depends on how committed we are to our savings plan.

More often than not, the road to financial success is not based on how much money we earn, but on what we do with what we have and how serious we are about achieving our goals. A good way to categorise savings goals is to work according to the so-called SMART criteria. This means that we should make our savings goals “Specific, Measurable, Attainable, Relevant and Time-bound”. This requires careful planning and a realistic yet achievable outlook. To help you with your planning, you may want to consider some of the following imperatives:

Short-term emergency savings

Ideally, you shouldn’t even think of saving for anything if you don’t have some emergency savings available to help you through an everyday crisis, which may require you to spend money immediately. This includes unexpected expenses like fixing a car or replacing a fridge. The general guideline is that you should build up the equivalent of three to six months of your salary in an emergency fund.

Long-term goals

Saving for your retirement is the key long-term goal. When all is said and done, you need to be able to survive in your old age – and thrive, to reap the rewards of your working life. If you have to choose, your children can borrow money to study. However, on retirement, you will no longer be able to generate an income and will be dependent on what you have saved during your working life. So set aside at least 15% of whatever you earn every month for retirement – whether in a company pension fund, retirement annuity or other forms of savings. If you don’t make saving for retirement your top long-term priority, you will be faced with either late retirement or poverty in your old age, or both.

Medium-term goals

Medium-term goals can be saving for your children’s education, travelling or buying a house or car. To be successful at saving for medium-term goals, you’ll have to focus on one priority at a time – and work out a time frame to achieve any or all of them. If you’re paying off debt, then this should be your paramount goal in the medium term.

Short-term goals

Achieving short-term savings goals should be last on your list. This can include things like buying a new TV or redecorating your house. These goals differ from short-term critical issues like doing a training course to further your career or setting money aside for the birth of your child and associated costs. People are exposed to a myriad choices every day, and it is often tremendously difficult to delay short-term pleasures for longer-term happiness. To get out of the rut of old habits, take time to understand yourself and identify your triggers for spending. Ultimately there is no right or wrong way to prioritise your savings, as long as you are saving according to your plan.