Financial Planning

Benefits of Having a Systematic Savings Plan

Published by Bob Gustafson

Benefits of Having a Systematic Savings Plan

Before we get into discussing what a systematic savings plan is, we’d be remiss if we didn’t discuss budgeting as a technique to save money. Taking the time to review your monthly expenses is a good habit. It’s also helpful in saving money. When you’re able to see all of the items you spend money on, it’s easier to cut some of the unnecessary things out. 

For example, maybe you decide to get take-out for dinner one night a week instead of two. Or start making coffee at home rather than spending up to five dollars on one cup. But the reality is that budgeting is not fun for most people. So, we’d like to offer another option: systematic savings.

What is a systematic savings plan?

You may not be familiar with the term systematic savings. But I bet you’re familiar with the concept because you use it for retirement savings. Most people automatically pull-out money each month from their salary to fund their company retirement plan. When you do it that way, you don’t miss the money because you never had it as disposable income in the first place.

A systematic savings plan is as the name implies. It is a process or system of automatically saving a portion of your income on a regular basis. For many people, creating a habit to consistently save is important to long-term financial success. But for those who have a hard time doing so, there are ways to automate the process so you don’t have to think about doing it yourself. Automatically having money moved to a savings account removes the temptation to divert funds to something less important.

For younger people, having a systematic savings plan to build a cash reserve should be their first step in becoming financially independent. Consider a systematic savings plan as you paying yourself before you spend money on other things you may or may not need.

Why are automatic savings plans so appealing?

I think most people over the age of forty would agree that time goes by very fast. The first benefit is if you can enroll in a company offered payroll savings plan or an automatic account transfer from your bank, saving money becomes easier. Once you set up a portion of your pay check and have it automatically moved to your savings account, you’ll be surprised how quickly it adds up!

Similar to budgeting, the other benefit of systematic savings is that you can use it as a tool to reduce expenses. Let’s say you want to save a thousand dollars a month. Automatically take out five hundred dollars a month from your paycheck and move it to savings. Then, you need to force yourself to reduce expenses in the amount of five hundred dollars to reach your goal. However, the key to success is to start small. Cut fifty dollars in expenses the first month and then go up from there. 

For example, let’s think about it like getting into shape. Don’t try to get on the treadmill and run five miles the first time. You’ll likely get discouraged and quit. Instead, run for five minutes the first day. Then, each subsequent day increase your time. Keep doing that until you feel pain and can’t go anymore. That’s the mindset you need to have with cutting expenses each month. Do it slowly, work your way up, and stay disciplined. It’s an excellent tool to save money.

Listen for more tips on how to create a successful systematic savings plan on our Financial Fridays Podcast

By automating your savings, you effectively remove any excuse to not save consistently. Just remember that everyone is different. Some of you may need a more aggressive approach to saving and others may be able to implement something less so. Now, it’s time to put this technique to use and start saving money! Contact us to let us help you put the right savings plan in place for your financial needs.