Have you been hoping to save more money with an aggressive savings plan? Maybe you’re planning ahead for a financial goal or you simply want to increase your savings for retirement. There are plenty of good reasons to create a plan to save a higher percentage of your income.
That said, if you desire to retire earlier than 65 or amass a large amount of savings for another goal, you likely need a tougher savings plan.
Given all of the uncertainties and financial challenges we face in today's world, an aggressive savings strategy can be smart. Even if you do it temporarily, for instance for six months or a year, saving aggressively could have some real benefits!
In this article, we'll look at some of the reasons to save more aggressively and how to do it. But first, let's take a look at some reasons why you may want to increase your savings with an aggressive plan.
Why you may want to create an aggressive savings plan
Saving aggressively is going above and beyond the typical. Statista reported that the average U.S. person’s savings rate was around 7.3% in 2021. However, some people are able to save a higher percentage of their income by saving more aggressively.
Here are some major benefits for why you might want to create an aggressive savings plan:
1. To prepare for retirement
An aggressive savings plan can be tied into your strategy to help you get ready for retirement. Yes, even though retirement might be decades away for you and you can’t yet imagine it, the day of your retirement will eventually arrive. How you prepare for it will determine your lifestyle in retirement.
Saving more aggressively now, no matter your age may help you secure your retirement. The younger you are, the more time your money has to compound effortlessly.
This could mean investing aggressively even just for a few years and then leaving that money alone. Doing this can make your life much easier down the line.
A lot of people seeking to retire early do so because they want more years to enjoy traveling, do volunteer work or simply want to have more freedom. In addition, retiring early year could mean doing more of what you dream of while you are younger since you aren't guaranteed good health as you get older.
So you might focus your aggressive savings on retiring earlier to take advantage of better health and more energy to do the things you love.
2. To save for your children’s education
Even though many young people today are getting into career fields that don’t require a college degree, you may need to save for your kids’ college education. As a parent, you want the best for your children, so an aggressive savings plan can support paying for the education they'll need.
Saving aggressively in the first few years of your child’s life in a 529 plan can provide you with great future tax benefits. (Find out: Is a 529 plan worth it?) The withdrawals are tax-free when they actually use the money for qualified school expenses, in most cases.
Plus, that money will help lower the number of student loans your child may need to take out.
While your children’s college education should not be your sole priority, it is a very high priority for many of us. Whether your children are toddlers or adolescents, saving aggressively for their college education could save them (and you) tens of thousands of dollars in student loan interest.
3. To prepare for a career change
Another reason some people choose to create an aggressive savings plan may be a potential career change. Plenty of women are changing their career paths, and that typically costs money.
You may need to get additional education, take classes, take time off from work, or take an unpaid internship before a job change. While it’s becoming easier to pivot career-wise, it still can cost you financially. That’s why saving aggressively could prepare you for that change.
It's a good idea to calculate how much money you’ll need to pursue a career change, then make your aggressive savings plan based on that. Be sure to factor in money from lost income if you need to quit (with a reasonable guess of how long you’ll be out of a job).
Determine how much courses or certifications associated with your career change will cost you.
As an example, before becoming a freelancer, I made sure I had enough money saved for at least six months. This gave me the time to find clients even though I didn't have a steady income.
Thinking of a new, more fulfilling career could motivate you as you create your plan to save more money.
4. To save for the unknown
Obviously, one of the big expenses you may want to save aggressively for is…a question mark. You may not know what exactly you’re saving for, but you want to be prepared for whatever happens.
Now, be cautious with this one. Worrying over all the unknowns in life and how much they’ll cost could drive you crazy. It might make you sacrifice too much for the sake of saving money. (Who wants to work 100-hour weeks for twenty years?)
However, you can pursue an aggressive savings plan for a brief period of time, just to feel more secure. It’s okay to feel fear sometimes, and if that prompts you to save an extra $5,000 or $25,000 or whatever amount, that’s great.
Unknown medical issues may arise, a divorce could derail your plans, or a sudden job loss could leave you scrambling for money. While your emergency fund should cover some of these major life events, saving extra money isn’t a bad idea.
4 Key steps to building your aggressive savings plan
Now let's get into the key steps to help you create your plan! Let’s assume you do want to become an aggressive saver. Perhaps you want to save a percentage of your income that your friends would be shocked to hear.
Could you save 35%, 40%, or even 50% of your total income? Those numbers are definitely on the higher end of savings rates and can accelerate your timeline for big goals.
If you want to achieve saving a major amount of money, regardless of if it's for retirement, college, or other goals, you need to make a plan. Here are key steps to help you create your aggressive savings plans:
1. Eliminate debt before aggressively saving
Now, this is an important step you should not skip! I know you’re excited about starting your big savings plan, but if you’re still carrying high-interest consumer debt, the savings won’t go very far.
You can save and pay off debt simultaneously, but if you have a large amount of expensive debt, it'll take time before you're ready for truly aggressive saving.
Getting out of debt is generally accepted as solid advice before saving super-aggressively. (Although if you have a 401(k) match, you don't want to miss out on that while paying off debt!)
While there are different types of debt, you should try to eliminate the debt costing you the most first. Credit card debt is one of the worst types of debt due to high-interest rates averaging 14.56%, according to the Federal Reserve.
You can try one of these tried-and-true methods for debt payoff: the debt snowball and the debt avalanche. Here's a breakdown of each to help you choose:
Try the debt snowball
If you have a lot of debt, the debt snowball is a common debt repayment method. Total up all of your debts, listing them from the smallest to the largest dollar amounts.
Then, after paying minimums on each one, pay extra on the smallest debt until it’s paid off. Repeat the process with the next debt on your list and so on. This debt payoff plan is great for those that thrive on small victories to keep them motivated.
Use the debt avalanche method
The debt “avalanche” takes a slightly different approach. With this method, you focus on the interest rates on each debt, rather than the dollar amounts.
Since higher interest rates mean paying more overall, the faster you can pay those high-interest debts the more money you'll save on interest payments. Once your debt is either gone or at a reasonable level, you'll have more money available to save.
2. Track your spending to know how much you can save
If you’re already out of debt (not counting your mortgage), you should take a look at your typical spending. If you don’t know how much you spend each month, it will be hard to tell how much you really have to put towards an aggressive savings plan.
In that case, it may be time to track your spending more closely.
Keeping a spending journal is useful in determining how you spend your money. If you’re unsure of how much you spend on various things like groceries, gas, entertainment, and other expenses, start keeping track.
You might already have a budget method you adore, and you can use that to take a closer look at your expenses. Determine which categories you’re overspending in and take note of the non-negotiable expenses.
When you track your spending (and compare it to your income) you'll see how much you have available to save.
For instance, let's say you bring home $4,000 per month in net income. After going through your spending and bills for the month and you discover that you saved $200 of that $4,000 for a 5% savings rate.
While that’s a good start, if you want to create an aggressive savings plan, you'll need to up your game significantly.
3. Reduce spending
All right, now it’s time to get into the actual aggressive savings! Unless you start making more money, you have to reduce spending in order to save more money.
Here are a few guidelines for how to do that without going crazy analyzing every single purchase.
Cut luxuries (within reason)
As you examine your budget or track your spending, look for opportunities to save. The quickest way is to cut out obvious unnecessary luxuries. For example, you could curb overspending on spa treatments, vacations, and excessive clothing purchases.
However, the definition of “luxury” depends on you. Technically, a luxury is something you don’t need. However, you can determine which luxuries are absolute musts and plan accordingly.
For you, the luxury could be worth it, even though it’s not exactly a “need.” You'll have to decide what’s a want versus a need based on your goals.
Keep in mind, that you don't necessarily have to give up all of the luxuries you enjoy. There may be a way to enjoy them at a lower cost.
Find equal alternatives that cost less
This is one of my personal favorites. My husband and I, have found that many activities that cost a lot of money just don't appeal to us. And if it is something we enjoy, we find a cheaper or free alternative that’s just as good.
For example, instead of going out to an expensive restaurant, we’ll spend a bit more than typical on high-quality ingredients to prepare a great meal at home. We always prefer a scenic hike or a trip around the lake on our kayak rather than a night at the movies.
Using entertainment alternatives like streaming subscriptions is another way to get the same thing for less. While there’s nothing wrong with spending money, if you’ve made it a goal to aggressively save money, you'll need to cut back on things.
Get creative and enjoy simpler pleasures. Go to the library instead of buying books or magazine subscriptions. Take in a movie at the park instead of the cinema.
Many inexpensive alternatives exist that will make you just as happy as the pricier version.
Reduce larger expenses
Another good way to really save aggressively is to focus on reducing your big expenses. If you look at your budget, it’s likely that housing and transportation are your largest costs every month. Food and other categories may be among your largest expenses as well.
While you can save by cutting out lattes or other small, occasional costs, the quickest way to make progress is with larger expenses. Since we’re talking about saving aggressively it may require drastic action at times.
If you want to reduce housing costs, you could move to a cheaper home or get a roommate. Those aren’t small decisions, though, and they can come with other costs. For instance, the costs associated with selling a home.
Look at other big expenses too, and see if you are able to reduce them or cut them out. Could your household get along with one car instead of two? Perhaps you could take public transportation or walk more often.
If you have any other major expenses that could be dropped for a year or more, that could jumpstart your savings.
4. Earn more money
Let's not only focus on ways to spend less, however. When you want to save aggressively, often the most effective way is to earn more money.
You can fast-track your aggressive savings plans by increasing your income. Some ways to do this are getting a second job, seeking a raise, or even pursuing a different career path. Let's discuss these ideas in more detail:
Take on a second job to save more aggressively
We all know starting a second job can increase your income but what you choose to do depends on your available time. You could perhaps get a part-time job during your off-hours. For example, driving for a rideshare company or working retail are a couple of popular options.
A second job could also entail starting a side hustle. If you have a skill you could monetize and it interests you, it could be a great side hustle. If you like managing administrative tasks, perhaps becoming a virtual assistant would work.
Just think of what earning an extra 10%, 20%, or more could do for your aggressive saving plan. You could even create a passive income plan that could get you to your goals much quicker. You just need to ensure that working a second job makes sense for you.
Ask for a raise to advance your aggressive savings plan
Now, don’t forget about one often-overlooked way of increasing your income: a raise. In many industries, pay is linked to factors like performance and the value you bring to the company.
Earning more at the job you’re already doing can put you on a fast track to saving. Rather than putting a ton of effort into starting another job or side hustle, you might get a big pay bump simply by asking for it.
That said, sometimes a raise can take time, too. You might need to track and document your accomplishments for your employer for six months or more. This way when you ask your boss for a raise, you’ll have data to back up your request.
An alternative to a raise is taking on overtime if it's an option for you at work. Yes, that’s more time, but if your employer pays a premium for overtime hours, it could be well worth it.
If a raise at your current job or adding an extra side job doesn't sound appealing or feasible, maybe a totally new career will work.
Change careers to boost your aggressive savings plan
Sometimes your job just doesn’t allow for earning more. You’re already at the top of the pay grade, or your job doesn’t offer overtime. Maybe it’s simply a low-paying industry and you’re tired of being stuck at below-average income.
As mentioned earlier, one of the reasons you might be saving is for a career change. Although shifting careers, especially later in life, could be costly, it could also be worthwhile. This depends on your potential compensation in the new career and how much training for it would cost.
Of course, you should be cautious about changing jobs solely to make more money. As important as earning a good income is, your well-being and job satisfaction matter.
So ideally, you’d look for another career path you think you’d enjoy—not only one that pays better.
3 Types of aggressive savings plans
Now that you’ve addressed your debt, spending rate, and earnings, be sure you know where the extra savings will go. Don’t just haphazardly throw all your newfound money into one account without any plans.
Here are a few guidelines for how and where to save more. Keep in mind, that you can set up your savings plan to be weekly, bi-weekly or monthly. The key is consistency!
1. Build an emergency fund
An emergency fund is non-negotiable. You should always have some money set aside for emergency expenses, which are unavoidable.
Many financial experts recommend that if you have zero savings now, you should first build a “starter” emergency fund. The amount of this can vary somewhat, but $1,000 is a good start.
This is your beginning emergency fund, in place to cover unexpected expenses like a blown-out tire or large vet bill. It might not cover every possibility, but at least it gets you in a better position while you save more.
Now, if you’re considering making an aggressive savings plan, chances are good that you already have an emergency fund. But this is a reminder to get that done first—you don’t want to be caught completely unprepared for sudden costs.
Bulk up your emergency fund to 3 to 6 months of living expenses
After you have your starter fund for emergencies, you need to keep building that up. This is generally considered an amount that can cover between three and six months’ worth of necessary expenses.
What is this “full” emergency fund for? It’s to cover your basic living expenses in the event of a job loss or other unforeseen loss of income. If you are self-employed or otherwise have an irregular income, it may be a good idea to save more, such as 9 to 12 months’ worth of expenses.
High-yield savings accounts are good for emergency funds
For both your starter and your full emergency funds, a high yield savings account is a good idea. The funds are easy to access in case of an emergency and you can earn money on the deposits even if it's just a small amount.
Some people may choose to keep some of their emergency funds in a checking account. Whatever you do, be sure it’s a liquid investment you can access easily.
2. Set up sinking funds
If you don’t have any “sinking funds,” it might be an effective strategy for you. While your emergency fund covers typical unexpected costs, sinking funds are for planned expenses that don’t happen regularly.
You can create sinking funds for upcoming expenses in many categories. People make aggressive saving plans for things like a new car, furniture, weddings, vacations, home updates, and renovations.
You might like having a gift-giving sinking fund, where you deposit money monthly to be used for gifts throughout the year. Since the purpose of these funds is unique, you can earmark specific amounts of money for them.
This approach can also help protect you from spending too much on something like furniture or a wedding.
3. Contribute to retirement accounts
After emergencies are taken care of, you can really double down on retirement savings. An aggressive savings plan could mean you’re able to retire years earlier than your peers.
Or it could just mean you’ll work a typical career and then have more money in retirement. A lot of aggressive savers do so in order to retire early or go part-time at a younger age.
Participate in a 401(k)
If you have a Roth 401(k), you don’t get the tax benefit upfront. Instead, you get to make tax-free withdrawals at retirement age.
Most people invest in 401(k)s through their employer, though there is the option of a Solo 401(k) too. If your employer matches your contributions, that increases your savings rate without costing you anything. It's basically free money!
Start an IRA
Both 401(k)s and IRAs offer great tax benefits and provide your money with the opportunity to grow for decades to fund your retirement. This could be a big part of your aggressive savings plan.
Give yourself breathing room while aggressively saving
Now, after all of this, I want to remind you that you are human. Aggressive savings plans are great if you are motivated to reach specific goals. You could truly improve your life by saving a high percentage of your income.
But don’t let the goal take over your entire existence! It’s so important to give yourself grace.
Overworking yourself is a possible downside of aggressive savings plans. If you can’t find a moment to yourself for months at a time while you’re saving, that’s a problem. Having no time for family or leisure or rest could put you at risk of burnout.
So while you are deciding how to save more, remember to give yourself breathing room. Spend some guilt-free fun money on a regular basis.
This may mean taking a break once a week to do something enjoyable. It could mean treating yourself to something when you reach certain savings milestones.
Perhaps you go on a weekend trip somewhere nearby after saving your first extra $5,000, for example. Be sure to create time for self-care and enjoyment of life. Saving 75% of your income won’t be worth it if you sacrifice your health or family to do it.
You can start an aggressive savings plan today!
If you want to accelerate achieving your goals, aggressive savings plans might be super exciting to you! I know I like the idea.
Figuring out your aggressive savings plan could help you reach major financial and life goals even faster than you think. Just be sure to keep it all in perspective because money isn’t everything. Happy savings!