Personal finance can cause a great many of us to feel anxiety and stress. While setting and achieving money saving goals might sound difficult — especially if you are doing this with your spouse — a little planning and effort will go a long way to making those financial goals a reality.
We’ll look at how to effectively set money saving goals and achieve them with ease in this article.
- Setting Money Saving Goals in 4 Easy Steps
- How to Attain Your Monetary Goals
- Creating and Maintaining a Healthy Savings Habits
- Choosing the Right Investments
- Final Thoughts
Setting Money Saving Goals in 4 Easy Steps
Setting financial objectives may appear to be a difficult endeavor, but it is actually rather simple if one has the willpower and clarity of thinking. To get started, follow these steps.
1. Be specific about your goals.
Having a goal without a clear and defined purpose is really just a dream; this is especially true when money is involved.
Savings is frequently referred to as “delayed consumption.” As a result, if you’re saving today, you should know exactly what you’re saving for. It could be anything: your dream house, your child’s college, that tropical beach trip you’ve been dreaming of forever, retirement, a luxury car, and so on.
Assign a monetary value for each goal and the time frame within which you want to achieve it. The main thing to remember at this stage of goal-setting is to make a list of all the goals you want to achieve going forward and attach a value to each one.
2. Be Realistic.
Being a positive person is admirable, but constantly wearing rose-colored glasses when looking at your finances is not. Similarly, while it may be beneficial to set a little of a stretch goal for your finances, going beyond what you can actually attain will significantly reduce your odds of making substantial improvement.
It’s critical to make your goals realistic because they’ll help you stay on track and inspired throughout the journey.
3. Consider Inflation in Your Calculations
“Inflation destroys savings, impedes planning, and discourages investment. That means less productivity and a lower standard of living,” Kevin Brady said. This remark encapsulates the damage that inflation may cause to your financial ambitions.
As a result, take inflation into consideration when you’re assigning a monetary value on a long-term financial goal.
For example, if one of your financial goals is to pay for your child’s college tuition in 15 years, inflation would increase the financial weight by more than 50% if inflation is only 3%. To prevent falling short of your goals, keep this in mind at all times.
4. Saving for Long Term vs. Short Term Goals
Just as no two calories are the same, no two approaches to accomplishing money savings goals are the same. It’s critical to separate short-term and long-term goals.
As a general rule, goals that you expect to happen within the next 3 years should be considered short-term. Those that you anticipate taking longer than 3 years should be looked at as long-term. The distinction between short-term and long-term goals will aid in selecting the appropriate investment instrument to attain them.
You should have a list of financial goals ready by now. It’s now up to you to go all out and make them a reality.
How to Reach Your Money Saving Goals
When we talk about achieving a financial goal, we normally break it down into two steps:
- Maintaining a strong savings rate
- Choosing the right investment
You’ll need to save enough money and invest it wisely so that it grows over time to help you attain your goals.
Creating and Maintaining a Healthy Savings Habit
Sticking your head in the sand about your current financial situation will get you nowhere. Now is the time to become fully aware of your finances.
This is the starting point for reaching your financial goals.
1. Keep track of your expenses.
The first and most important step is to keep track of where your money is being spent. To record your spending, you might use an ap, but we recommend a simple spreadsheet. When you do this consistently, you’ll be astonished at how quickly minor expenses add up to a significant sum.
Also, group those expenses into distinct buckets so you can see which one is consuming the most of your cash. This meticulous record-keeping will pave the path for you to reduce unnecessary expenses and increase your savings rate.
2. Take care of yourself first.
Many people only put money into savings that is “left over” at the end of the month. However, this big mistake means that we are the last to be paid!
This should ideally be done in reverse. We should pay ourselves first and then the rest of the world, i.e., we should set aside the targeted savings amount first and then handle the rest of the expenses.
The simplest method to do this is to put your savings on autopilot, with money flowing into various financial instruments (mutual funds, retirement accounts, and so on) on a monthly basis.
Choosing the automatic option will allow us to “set it and forget it” and force us to manage what’s left, resulting in a higher savings rate.
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3. Make a plan and commit to it
Many people think that creating and following a budget is the best way to make this happen. Unfortunately, the reality is that while budgets may be painstakingly created, they often fail. A better way to manage your savings goals avoid the pitfalls of budgeting is to focus on the goals that you want to achieve and weigh those against purchases that aren’t necessary.
Note: This does NOT mean that you should give up everything that you enjoy! That’s a sure-fire way to ensure that you will never reach your money saving goals. Instead, employ moderation when “treating” yourself.
If at first you don’t succeed, try, try again. Yes, it’s an old adage, but it is very appropriate here. If you don’t meet your goals exactly as you inteded, don’t give up.
4. Create a saving habit
Aristotle wrote, “We are what we repeatedly do. Excellence, then, is not an act, but a habit.” Rather than making money saving a goal, to make it a permanent change, you need to make it a habit. While this may seem backwards, the habitual act of saving leads you to accomplish your money saving goals easily.
Here are some examples of savings habits that will add up over time:
🔹 Consider your choice in restaurants. A “nice” meal out can set your account back quite a bit, while a less expensive dining choice can leave more in your pocket.
🔹 If you enjoy traveling, aim to fly during the middle of the week. Often ticket prices are substantially lower on Tuesday and Wednesday.
🔹 When looking to make a large purchase, take the time to price shop. If you could save $2,000 on your next car purchase, would it be worth an hour of your time searching the web?
Doing any of these activities once may not make a huge difference on your bottom line, but doing them consistently can really add up. The important thing is to focus on the behavior that leads to savings rather than the savings themselves, which is the result. Focusing on the outcome will elicit a sense of sacrifice, which will be difficult to maintain over time.
5. Be open to discussing money
It’s not always easy to stick to a savings plan in order to meet your financial goals. There will be a lot of temptations from people who aren’t on the same page as you.
As a result, if you want to stay on track, surround yourself with others who are likewise on board. Discussions with them regularly will keep you motivated towards your savings goals.
6. Keep a journal.
Writing is a powerful tool that can be helpful in ensuring that you accomplish your goals.
Even if you’ve never done this before, start by writing down your goals as well as the extent to which you were able to achieve them in a notebook . This will assist you in assessing how far you’ve progressed and which goals you’ve achieved.
You will feel more motivated to follow the plan and adhere to it if you have a recorded commitment on paper. It will also be much easier for you to keep track of your progress.
Choosing the Right Investments
While a savings account at your local bank is a great place to start accumulating your money, you won’t make much off of those funds. However, if you take that money and invest it sensibly, your return can be impressive.
1. Seek the advice of an expert
Because most of us are not immersed in the investing world, it’s a good idea to seek the advice of an expert in the field.
A word of caution if you are consulting with a financial advisor or planner: financial professionals (just like every other occupation) are not all created equal. Check out this article for more informatin about different financial experts.
Discuss your financial goals and savings with him or her, and then seek guidance on the appropriate investment vehicles to help you reach your goals.
2. Make an informed decision on the investment instrument to use
Tough your financial advisor will recommend the best investment instruments for you, it’s a good idea to understand the basics of each type, such as a savings account, IRA, annuity, and other options.
No investment instrument is good or evil, just as “no one is born a criminal.” It is how that tool is used that makes all the difference.
As a general guideline, choose a debt-based investment product (such as a savings account or bonds) for all of your short-term financial goals. The advantage of debt instruments over equity instruments is that the risk of capital loss is considerably lower.
3. The Eighth Wonder of the World Is Compounding Interest
When it comes to compounding, Einstein once said:
“Compound interest is the world’s eighth marvel. He who understands it earns it… He who does not… pays the price.”
Make friends with this incredible tool. The sooner you make friends with it, the sooner you will achieve your financial objectives.
Begin saving early so that time works in your favor and you can reap the benefits of compounding.
4. Measure, Measure, and Measure Some More
We all do well when it comes to increasing our monthly income, but we all fail badly when it comes to measuring our investments and keeping track of how they are performing.
We’re shooting in the dark if we don’t track progress at the correct times. We won’t know whether our savings rate is suitable, if our financial advisor is doing a good job, or if we’re getting closer to our goal.
Everything should be measured. If you are unable to measure everything yourself, have your financial advisor do it for you. But go for it!
Find ways to maximize your “extra” cash to meet your short- and long-term money goals.
Anyone who is prepared to put in the time and effort can create and achieve their financial goals. Follow the steps above to get started and then stick to your plan. You’ve got this!