Just like with life in general, setting goals for savings can make you much more focused on the task at hand and therefore more successful in reaching those objectives. But how and where do you get started on your savings goals?
A step-by-step process can help you discern what you want most out of your money. Follow these five steps to stay focused so you can watch your savings grow and achieve your dreams:
1. Make a budget - Taking into consideration what you earn each month versus your expenses, create a monthly budget. This will help you figure out how much you can afford to save. The reality is that goals mean nothing if they aren’t legitimately feasible.
2. Define your goals and name them - That may sound silly, but placing a specific tag on an account will help you stay focused and reach your goals faster, say the financial planners at The Money Advice Service. Seeing the deposit amount rise in your “Mustang Fund” will help you stay motivated, whereas keeping a watchful eye on Account No. 280599 may seem depressing.
At the same time, come up with a target number. How much money will you need for a down payment on that brand new Ford, and just as important, by when would you like to be riding around in your new whip? Research by National Savings and Investments of the United Kingdom has found that people who set savings goals save up to £550 a year (which is more than $865 in the United States) more than people who don’t, and they also save that amount at a faster rate.
3. Clarify your priorities - You likely have more than one item for which you are saving up. In conjunction with defining your goals, you will need to decide how much of that money you budgeted for will go toward which goal. When you set goals, you need to make choices, and that means prioritizing which ones are most important.
4. Consider the best products, places and strategies for saving - Your timetable will likely help you with these decisions, along with how much risk you want to take with this money. For example, The Money Advice Service recommends:
- For a short-term goal (up to five years), you want a savings product like a savings account, high-yield savings account, money market account or CD.
- For a medium-term goal (5-10 years), use a savings product, or consider investments, depending on your goals and risk appetite.
- For a longer-term goal (10+ years), you should consider investments like stocks, bonds or federally insured IRAs. These tend to provide protection from inflation over the long term.
5. Utilize automatic transfer - Financial institutions suggest that customers use online banking to schedule automatic internal transfers to savings, as they make banking much easier. There are many options for setting up internal transfers using online banking. You can choose how often you want to transfer the money and to which accounts. In fact, setting up multiple accounts for your various goals will help you stay focused as well. If your money isn’t in checking, you’re also less likely to spend it.
By adhering to the above steps, you will find hitting your savings goals to be much easier and less stressful.