Saving For A Goal
A Step-By-Step Guide
Many of us have a “Bucket List” — a collection of things we want to do or accomplish one day. Perhaps a trip to Italy, surf lessons, or buying a house is on yours. But is your list a wish list or a goals list? There’s a big difference. Goals have a clear-cut plan for achievement, and a big part of that plan is typically money. If you’re serious about crossing items off your bucket list, then you have to devote some time to understanding exactly how you’re going to finance your plans. Here’s how.
Take Your Goal From Vague to Specific
Exactly what does your goal look like? How many years do you think it will take you to get there? A good goal will be very specific and incorporate a timetable. You should be able to see your goal as well. If your eyes are on the prize for a trip to Paris, take a photo of the Eiffel Tower and put it on your fridge, or make it your phone’s screensaver, advises Carrie Rattle, founder of Behavioral Cents. Not only will this keep your motivation high, visual reminders can also help dissuade you from making unnecessary purchases.
Decide Exactly How Much You Need To Save
Before you set your goal-realizing timeline, take a look at your total income and do an in-depth analysis to find out exactly what your available spending budget is, says CFP Board Ambassador Lynn Ballou. Next, calculate exactly how much of that budget you’ll be able to set aside for your specific goals — and chart out how long it will take you at that rate of saving to get there. Big goals may make you realize you need additional income. If so, then this exercise may be the motivation you need to take on a side hustle or make a career move that may be more lucrative for you.
Set Up a Separate Savings Account
Behavioral finance research has shown that separating money you’re putting toward specific goals actually helps you achieve them — it’s called “mental accounting.” Once you’ve got a separate account set up for your goal, automatically transfer money into this account from your checking each month, so you don’t even have to think about it.
Curtail The Retail Therapy
If you’re tempted by promotional emails advertising big sales “Today Only!” or bargains that “Expire This Weekend,” it’s time for an end run. Unsubscribe. Don’t worry about FOMO — If there’s a specific item you need, then you’ll know to search for it and purchase it when you need it. Even if you think you won’t be tempted, think again. According to a Finder.com survey, 64% of people make an impulse purchase every month, spending an average of $81.75 each time. Imagine how much quicker you’d be able to reach your goals if you were able to put that much money aside every month? Think about that the next time you’re tempted to click “place order.”
Have Regular Check-Ins With Yourself
If you were trying to lose weight, you might get on a new healthy diet to help you reach your goals. You’d also probably weigh yourself weekly to see if your diet was working efficiently, rather than waiting until the three months were up and then hopping on a scale. Saving for a financial goal is no different — you have to have regular check-ins with yourself. They are “the heart and soul of a successful plan,” Ballou says, and you should aim to check in at least monthly on your progress to make sure you’re on track, and make any adjustments necessary.
How to Boost Your Savings
Easy strategies to boost your savings.
Despite the growing economy, 20% of Americans aren’t putting any money in their savings account, according to a recent survey. Only 16% of people said they put aside the expert-recommended 15% or more of their monthly income. Reasons included high expenses, low salary, or simply just not getting around to it. Thankfully, if you’re among those struggling to save, there are a few easy ways to kick start your efforts.
Out of Sight, Out of Mind
You may have heard it’s a good idea to separate your checking and savings accounts, but have you considered de-linking them as well? When your savings account doesn’t pop up on the ATM screen when you go to pull money out of checking account, it makes it harder to treat it like an extension of your checking account, and tap into it on a whim. Yes, it seems artificial. But it makes it less likely you’ll impulsively reach for the money when you mean to save it for another goal.
Find a Reason You’re Saving
When you dedicate your savings for a certain purpose, you’re less likely to be tempted to use that money for something else, making it more likely that you’ll reach your big goals. Consider opening specific savings accounts for specific purposes and giving them a name that lines up with your goals.
Name one “Emergencies” or “For A Rainy Day”
While you’re at it, one of those savings accounts should be specifically designated for emergencies. Right now, according to the Federal Reserve Board, 40% of Americans can’t cover a $400 emergency. Although it’s optimal to have three to six months worth of living expenses (that’s money you have to spend rather than money you typically spend on a monthly basis) begin by aiming to build a rainy day stash of $1,000 to $2,000. That’s your insurance against a leaky roof, surprise medical expense or anything else you would otherwise have to put on a credit card.
Set It and Forget It
Modern-day technology not only saves a lot of time and energy, but it can also save a lot of money. Simply set up a direct transfer to automatically move money from your checking into your savings account. You can choose to have this occur every pay period, or every month, for a set dollar amount of your choosing. This way you never have to worry about forgetting to save — it’s happening for you.
Be Strategic About Savings Rates
Lastly, we’re now at a point where we should be getting strategic about being paid more on the money we’re saving. Although the average interest rate on savings accounts in the US is .1% (yes, 1/10th of 1 percent), you can find rates of 2% or more by shopping around. Credit Unions are known for having better than average interest rates. Talk to your credit union or bank about whether you qualify for a higher rate than you’re getting now.
Wherever you are on your money journey, saving more is one of the best ways to ensure you reach your financial goals.
The Easy Path to Frugality
Some simple ways to be more frugal.
You can be more frugal with your money if you want to be. There’s no trick to it, it’s all about little, daily behavior changes that add up over time. Check out some of these tips below.
It’s time to embrace generic versions of everything. The next time you go to the grocery store, buy as many store brand products as possible. The next time you buy Advil or allergy medicine, opt for the generic version. As US News reports, store brands usually have the same exact ingredients as name-brand products, and are almost always cheaper.
Try being more mindful about waste. How often do you buy produce only for it to end up in the trash or compost? Instead of buying with the future in mind, buy with the present in mind. For example, if you’ve been paying for HBO but haven’t actually watched one its shows in months, cut it loose. If there does come a day when you want to watch a HBO show, trust us, you can start paying for it again.
There’s really no need to buy brand new items all the time. Even buying a new car can be a big mistake, as its value depreciates so rapidly. Alter your approach to spending by focusing more on used items and hand-me-downs. (It’s good for the environment, too.)
One way to cut back on spending and be more frugal overall is to increase your planning. Map out meals ahead of time to avoid hemorrhaging cash at the grocery store. Create, and stick to, a detailed monthly budget to keep your savings goals on track.