That Prada bag or a savings plan……..Instant satisfaction or delayed gratification?

Its summer and you have taken that long, well deserved vacation to your destination of choice. You are at the end of your holiday and while doing your last minute shopping as most of us do, your eyes glance at a stunning Prada bag, a definite must have. What do you do? Do you walk in and buy the lovely bag on impulse to add to your collection of other exotic designer bags? Do you pause to consider the opportunity cost of buying the bag and consider saving instead? On a daily basis, the average individual is faced with the choice of deciding on either instant satisfaction or delayed gratification in all areas of life. Unfortunately, many of us choose the former and consequently, many do not have a savings plan in place to cater for expenses during retirement, unforeseen emergencies, loss of employment and so on.

What is a savings plan?

A savings plan is essentially the contribution of money on a regular basis in order to reach short to long term financial goals. These may include education expenses, family vacation, or that inevitable rainy day.

Most financial planners or advisers suggest saving at least 10-15% of your income as well as setting aside at least three to six months of your monthly income in cash or liquid investments for emergencies.

How do I create a savings plan?

It all starts off by changing your mindset and focusing on delayed gratification. Once achieved, your financial plan should consist of the following key components

1. 1.  Identify your savings goal or objective: What are you saving for? Are you saving to buy a house, retirement or a family vacation. An important point to note is that your goals must be specific, measurable, achievable, realistic and time bound (SMART).

1. 2.    How much can you save?: If you do not have a budget, this is the best time to create one. Review your budget to determine how much you have available to save. The recommended savings amount is at least 10-15% of your income. Note that this is a guideline and you are at liberty to exceed this recommendation where possible.

1. 3.    What are the available options?:These include savings account, money market funds, mutual funds etc.  Factors to consider include accessibility, amount and frequency of savings.

1. 4.      Method of disbursement: An effective way to save is to put a direct debit in place. Essentially, the amount due is automatically deducted from your account and placed in the savings vehicle.

1. 5.     Review, review, review: It is important to always review your progress towards achieving your savings goal or objective. In the course of the review period, you may have to make some adjustments upwards or downwards with regard to your contributions.

Every time you are faced with the choice of instant satisfaction or delayed gratification, do yourself a favour and ask yourself, do I have a savings plan in place? If your answer is yes, then it might be a good idea to consider increasing your contribution to your savings plan before you give yourself a treat and indulge in that gorgeous Prada bag.