With monthly bills and other expenses to pay for, setting aside money for savings may not be a priority. But with a little planning and clear goals, you can save while keeping up with day-to-day spending.
Setting Savings Goals
You’ll be more likely to save if you are saving for something specific—that’s why setting goals is so important. To get started, make a list of things you want or need to save for, such as buying a car, paying for college, or planning for a vacation. Any list of goals should include:
An emergency savings fund. That’s exactly what it sounds like—enough savings to cover an emergency expense. Aim to save three to six months of living expenses.
Paying down high-interest debt. If you have credit card debt or other loans with high interest rates, you’ll want to pay those down first. If not, you’ll be in debt longer and pay a lot in interest.
Planning for retirement. It may seem far away, but saving for a secure retirement will take many years. Take advantage of your company’s 401(k) match, if available, and set aside additional savings.
Make note of how much money you’ll need to save, and how long it might take to save that amount. Be realistic. Can you afford to save that much each month? If not, you’ll need to adjust your plan. It can be helpful to set goals for the short-, mid- and long-term.
Short-term financial goals take less than a year to achieve. Examples include taking a vacation, buying new furniture, paying off a specific debt, or making minor home improvements.
Mid-term financial goals are the Mama Bear of goal setting; they should take three to 10 years to accomplish. Examples include saving for a down payment on a house, buying a car, paying off student loans, or starting a business.
Long-term financial goals are the big fish—those dreams that take many years to reach. These include planning for retirement, buying a home, and saving for a child’s college education.
With your goals in mind, it’s time to start saving. Here are a few steps to get you on your way.
Create a budget. By tracking your income and expenses, you can more easily find extra money to allocate to savings—or identify areas to cut back and save instead. Write down all your spending and income for a full month. Look for patterns to improve on and areas to cut spending. The 50-30-20 rule recommends spending 50% of your income on needs, 30% on wants, and 20% on savings or debts.
Separate your savings. By using a separate account for savings, there is less risk that money will be spent on something else. And many savings accounts earn interest, meaning you’ll make money just by saving it.
If you have more than one savings goal, consider individual savings accounts for each goal. This ensures money is used for its intended purpose, and you can more easily see how you’re progressing toward each goal.
Set it and forget it. Set up automatic transfers from your checking account or paycheck into a savings account.
Review and reset. Regularly analyze your spending to ensure you’re on track with your savings goals. And, because goals and plans change, you’ll want to touch base often so you can adjust as needed.