Saving money is hard. I get it. You want new things, you want to go out with friends, you want to drive a nice car. But learning how to save money is a valuable skill for your entire life. You can still live a fulfilling life and save money. If you are struggling with getting started, you should begin with setting a goal. Setting a money saving goal has many benefits. Obviously the biggest is that when you save up for something, you can afford to buy it. We also get a boost of confidence when we reach a goal that in turn encourages us to set and meet more goals.
Are you currently spending money like it’s going out of style and buy whatever you want because “you can pay for it later”? Or maybe you put everything on credit cards because then you can just make the minimum payments. If any of these situations sound like you, then you should begin setting and meeting financial goals.
Creating financial goals and shaping your future financial well-being is extremely important during any and all stages of life. Let’s break down the process into easier steps. These are the basic steps for making a financial goal:
- Decide what you are saving for.
- Set a time limit for reaching your goal.
- Break down how much you must save each day, month, or year to reach your goal.
- Decide where you will keep the money.
- Work Hard.
1. Decide what you are saving for. There are many things you may want to save for. A new saddle, a downpayment for a house, a retirement plan, horse show, your dream barn, or buying your next horse are just a few possibilities for something you may want to set a savings goal for. Once you know what you are saving for, it makes setting and achieving your goal seem more worthwhile (and therefore you’ll commit to it more fully).
If you are saving for the downpayment on a house, you’re going to need a lot more money than just buying a new saddle. So you need to understand what your goal is so you can reach it.
You are probably going to have lots of savings goals once you start thinking about all the things you want to save up for. Long term, you need to plan for retirement. Short term, you are gearing up for the show season, so you’re going to need money to enter and travel to horse shows.
This first step of deciding what you are saving for is going to set your intention for this goal and prepare you to reach it.
What do you want to save for?
2. Set a time limit for reaching your goal. You need to commit to how long you’re going to take to reach this goal. It can be a short term goal like creating a $1,000 emergency fund, or it can be long-term like contributing the maximum allowable to an IRA retirement account each year until retirement.
If you are saving for a downpayment on a house, you probably have a timeline for when you’d like to be able to buy a house, so you’ll want to plan to meet that goal within 1 year, 3 years, 5 years – whatever that timeframe is. Your goal timeline is up to you and what you want to achieve.
If you aren’t sure how long you’ll need to reach your goal, I suggest setting the timeline a bit shorter, ie more aggressively, so you work harder toward your plan. Ultimately, it may take a little longer but I like to be ambitious in my goal setting.
For example, this year the maximum allowable contribution to an IRA is $6,000. Last year I was able to reach my maximum IRA contribution by the end of March. I was hoping to achieve the same thing this year even though the contribution limit went up to $6,000 (from $5,500). However, the IRS had different plans for me. After always getting a refund, this year we get to pay (don’t get me started on that)…so there goes several thousand dollars that could have gone in my IRA. Therefore, I amended my goal after I inputted our tax information at the beginning of February. Now my goal is to max out my IRA by April 30th.
Just because you set a time frame to complete your goal, doesn’t mean you can’t change it once you are on your way to meeting the goal. But you should be flexible both ways – if you are willing to extend the time needed to meet the goal, you should also shorten it if you receive a bonus at work, or end up with some extra cash to put toward your goal.
How long will it take you to reach your money-saving goal?
3. Determine how much you are going to save and when. Break down your goal into the timeline you’ve decided on and determine how much you’ll have to save each day/week/month/year to reach this goal.
If you are saving for early retirement, how much do you need to safely live off of for the rest of your life? If the answer is $2 million and you want to save that by age 45, how much will you need to save each year to reach $2 million? (In case you were wondering – if you’re 25 now, you’re going to need to save about $4,000 a month until age 45, and that’s with a 6.5% return on investment.)
But if your savings goal is smaller, like let’s say funding a $1,000 emergency fund, then your timeline and amount to save is much shorter and less aggressive. If you want to save $1,000 in the next 3 months, you only need to save $333 a month to get there. (Read the link above for simple ways to get there more quickly).
Now that you have your financial goal, you are going to divide up the amount you need to save by the timeline you have chosen, and that will give you how much you need to save on a weekly/monthly basis. I find that weekly or monthly goals are easier to achieve. I find that monthly goals are easier to reach because most of us get paid on bi-monthly or monthly schedules. It can be difficult to find extra cash each week when you have to wait to get another paycheck.
So now you know how long you are giving yourself to reach your savings goal and how much you need to save on a weekly/monthly/yearly basis.
4. Next, you will need to decide where you will save the money. If this is strictly retirement savings, a traditional or Roth IRA is typically the best place to keep your money. There are tax advantages to each of them and you should max those out first if you are saving for retirement. If you’re saving for a new saddle, you’re going to need an easy to access savings account, so perhaps just use a savings account at the bank you already have, or open a new savings account simply for your goals. There are many online savings accounts that allow multiple accounts that make goals easy to view and divide. (I suggest Ally Bank for a simple online account with a small return for your savings account.)
If your savings goal is for a downpayment on a house, then the timeline you wish to achieve that in is important for determining where you should save the money. Compound interest is great, but the stock market or investment accounts can be volatile places for money and you don’t want to need your savings abruptly when the market is in a downturn. I suggest deciding how soon you’ll need the money. If it is not for several years, you could use an investment account for a couple years to earn some money with your money, but then withdraw it a year or two before you’ll need it (and before your money loses money). Be aware that if you do choose an investment account versus a stable savings account, you may end up needing your savings when it is worth less than you put in.
What type of bank account will you use to keep your money while you are saving toward your goal?
5. Final step = work hard to achieve your goal! Maybe it’ll just take a little discipline and less eating out to reach a smaller goal, but it could also take years of saving and scraping money together if you’re working toward a big goal, like buying a house. But whatever your goal is – you’ve set it and now you need to work for it. If you don’t think you make enough money at your day job, consider finding a side hustle to contribute to your bottom line.
Check out My Top 10 Side Hustles
Read about How to Save your First $1,000
There are so many side hustles out there, and there is something that fits everyone! I currently blog and sell items FBA on Amazon. So far I’ve made a grand total of $0 blogging :-), but I do hope to make something someday. Amazon selling has been more lucrative but I could make more if I worked harder at it and dedicated more time.
When working toward your goal, it is also a huge advantage to automate the savings. If you opened a new savings account for this goal you are working toward, set up automatic deposits each month (in the amount of your goal/timeline). If you don’t get to see the money in your regular account, it’s so much easier to not spend it on something else!
You know the old saying “where there’s a will, there’s a way” – well that is how you should approach your own savings goals. Work hard and you will achieve what you set your mind to.
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