So at this point, if you’ve been following along, you’ve basically gotten a big picture look at your financial situation.
You know what you’re bringing in, how much you’ve been spending and what you’ve been spending it on. But now it’s time to focus on what you’re keeping — your savings goals. I have to admit, I love saving money. I don’t mean getting discounts on stuff at the store and not actually adding any money to my bank account — I mean seeing my targeted savings accounts (more about that soon) filling up.
It’s a great feeling. I hope you have it, too.
If you don’t know where you’re going, there’s no way you’re going to get there.
Saving money isn’t just about stockpiling cash; it’s about where you want to be in life and what you want to do. Money is only as good as what you can do with it.
So it’s important that you know what you’re saving for before you start.
What are You Saving For?
First, write down the things that you’re saving money for.
These could include:
- an emergency fund
- a car
- real estate
Chances are you’re saving for more than one of these, so it’s important to prioritize.
For example, having an emergency fund of 3-6 months of expenses may be the most critical to have. Should you unexpectedly lose your job, you’ll have a cushion on hand. A vacation may come next, and so on.
Your priorities might be different from anyone else’s, but it’s important that you decide what comes first. List out your number 1, 2, 3 etc. priorities to determine where you should start.
Don’t think that you must save for everything at the same time, though you may want to, depending on when you’ll need the money.
You may have noticed that retirement is not on this list; we’ll get to that in a few days. Saving for retirement normally involves more than one vehicle (a 401(k) and Roth IRA, for example), and its handling and management is different than short-term goals.
What Will it Cost?
After you’ve prioritized your savings goals, you need to figure out what they’ll cost.
Certain goals are easier to calculate than others. An emergency fund is typically 3-6 months of your household expenses. You can make a ballpark guesstimate on what a vacation will cost you.
To determine how much you need to be putting aside each month, list estimated costs next to the things that you’re saving for. For the smaller goals, be as specific as possible. For the bigger goals, a ballpark estimate will do.
Divide the amount by the number of months you’d like to take to reach the goal, and you’ve got your monthly set-aside.
Adjust your timetables accordingly; if you see that you can’t save $10,000 in 12 months, give yourself more time.
It’s up to you to make smart decisions about what you can handle financially.
Add to Your Budget
After you’ve determined your monthly set-aside for savings, add it to your budget in Yodlee (or your account aggregator).
At this point, most of your Flux total should be used – but not ALL of it. There’s still one more important thing to save for – and you’ll want to have room to pay for this.
3 Tips for Short-term Savings
When you’re saving for short-term goals, it’s easy to get overwhelmed with putting money aside. But it doesn’t have to be.
Here are 3 tips for saving for short-term goals:
- Save for One Goal at a Time – It’s much easier to attack one goal with as much force as possible then to spread yourself out over multiple goals. You can’t always focus on just one savings goal, but if you can, do it.
- Push Yourself to Reach it Quicker – By determining how long you’d like to take to reach the goal, you’ve given yourself a maximum amount of time necessary. Aim to hit it quicker by pocketing bonuses, gifts, and any raises you get.
- Make it Part of Your Spending Routine – If you’re at the supermarket or out at the mall, think about what you’re spending money on: could you get something cheaper (or not at all) and put the difference toward your savings?
TIP: Saving money can be one of the most exciting things you do. You’ve probably experienced it when you got a good deal on a purchase; putting money aside is just as good. When you find you already have the money to buy something you need, you don’t stress about it – you enjoy it.
About the author: Jason is the author of Automatic Finances: 17 Days to Your Financial Freedom, a guide to automated money management. He started investing thanks to a free lunch, and after finding out how he was getting the short end of the stick, he sought out how to do it right. More »