Savings Goals: Easy Tips To Set, Calculate and Reach Your Money Milestones
Savings keep your financial future looking bright. It could be a safety net to fall back on in emergencies or an account with funds to fuel dreams like going to school, starting a business or retiring. And it all starts in one place:
Savings goals. Setting them, calculating them, and reaching them.
For many people, saving can feel like an uphill battle — especially when you feel like you don’t have any extra money to put aside. Here are some easy tips to help you prioritize savings and reach your financial goals — whatever they may be.
What Is a Savings Goal?
A savings goal is a target you set for how much money you want to put aside for future use. It’s about more than just adding zeros to your bank account. Without setting a goal it can be hard to measure your progress and stay on track. A goal gives you a target to reach. This could be building an emergency fund, saving to buy a car or put a down payment on a house, or reaching your retirement savings goals.
Having a goal helps you because different goals may need different savings plans. It can also motivate you to stay on track. When you know what you’re working toward, you have a clear picture of how your hard work will pay off.
How To Set Goals
To set a savings goal, first decide what you want to work toward. Do you want to have emergency savings to tap for unexpected bills, do you want to buy a new car, plan a family vacation or send your kids to school? Whatever it is, you can now start creating your goal around it.
Your goals should be SMART.
Specific. A specific savings goal is more than just saying “I want to save more.” It’s saying, “I want to build a savings account for emergencies.”
Measurable. Make sure you’re able to tell when you’ve achieved your goal. You should have a defined amount that you want to reach. Think: “I want to save $1,000 into an emergency fund.”
Achievable. You should also make sure that your goal is achievable. You need to be able to realistically reach your goal.
Relevant. Does your goal fit in with your life and your values?
Time-bound. Be sure to set a time frame around your goal or you won’t be motivated to reach it. Your final goal should sound something like this: “I want to save $1,000 into an emergency fund by the end of the year.”
Examples: Short-Term Savings Goals
Short-term financial goals are typically goals that you can accomplish in less than five years. Here are a few ideas:
- Building an emergency fund.
- Saving up to buy a car.
- Saving for a vacation.
- Saving to get a new phone, video game console, laptop, or another piece of tech.
- Saving for holiday or birthday gifts.
Examples: Long-Term Savings Goals
Long-term goals are goals that will take longer than five years to accomplish. This is because they typically require you to save a lot more. The sooner you get started, the better off you’ll be!
- Saving for retirement.
- Saving for college.
- Saving to put a down payment on a house.
- Saving to start your business.
- Building an investment portfolio.
How to Calculate Savings Goals
To calculate how much you should be saving in order to reach your goals, divide the total amount you want to save by the number of months left before your deadline. Here’s the formula:
For example, if you want to save $1,000 in six months, divide $1,000 by six. When you calculate this, you see that you’d need to save $166.66 per month, or $83.33 every two weeks.
If you have your money invested or it’s in a high-yield savings account, you need to do a little more math. Luckily, they make online calculators that allow you to simply input your goal, how much you’re starting with, your timeline and the percentage your savings or investment accounts are expected to make. The calculator will do all the math and show you how much you need to be saving.
How to Prioritize Savings Goals
You probably have a few different savings goals, which can make it hard to know which one to start with. Generally, it’s best to start with an emergency fund and plan for your long-term goals. But depending on your situation, prioritizing other goals first may make more sense. So when planning, also take into account what works for you.
Emergency savings. Building an emergency savings account should be your first priority. Having money in the bank that you can access when you need cash helps keep all your other goals on track. If you have an emergency fund, you don’t need to throw off your monthly budget to cover unexpected expenses.
Retirement planning and long-term goals. As the name suggests, these goals are going to take a while to reach. The earlier you start the easier it is. You can work on these at the same time as your other goals, but these should be a priority. Also, with an IRA or individual retirement account, your money will likely be invested. Starting early gives your money more time to work for you and earn you more.
Buying a car or house. Now that you have an emergency account and you’re happy with your savings plan for your long-term goals, you can start working toward lifestyle goals. This could be a new car or buying a home. These types of goals may depend on your specific needs. For instance, buying a car may be more important if you don’t have reliable public transportation available. With both cars and houses the more money you can put down up front the cheaper your monthly payments will be. Having reliable transportation and a safe place to call home is important, and a house can be a great investment.
Fun stuff. Things like saving for vacation, technology or other stuff that you want but don’t necessarily need should be your lowest savings priority. When you start saving for these kinds of things first, you may find it hard to reach your goal. This is because any time there’s an emergency, you’re most likely going to find yourself dipping into this account. While it’s okay to treat yourself every now and then, you should focus on the things that are going to set you up for a bright financial future first.
Expert Tips to Reach Savings Goals
- Pay yourself first. As most financial advisors will tell you, this is the most important rule in personal finance. Whenever you get paid, you should take a portion of your income and put it into a savings account. If you get paid through direct deposit, you may be able to have some of the money go directly toward your savings, so you won’t even see the money in your checking account.
- Set it and forget it. When doing your financial planning, you should make it as easy as possible for yourself to save. Automating your savings makes it simple to save. Just set up transfers on a schedule that works for you.
- Hide your account. Sometimes it’s tempting to dip into our savings when we don’t need to. Having your account be out of sight removes some of this temptation. You can open a separate account at another bank, or some online banking platforms give you the option to hide an account.
- Choose your savings account wisely. Some savings accounts are better than others. Your basic savings account should be a high-yield savings account. (A high yield means the bank is paying you a good interest rate for saving with them.) Your bank should also be FDIC insured and offer advisory services and different savings vehicles like certificates of deposit or brokerage accounts.
- Pay off debt. Debt can be a big drain on your monthly income. If you have credit card debt, student loans or a car loan, paying off debt can free up more cash for you to stash away.
- Get a side hustle. If you feel like you’re just covering your basic living expenses and don’t have extra income to pay off debt or save, you can either negotiate a pay raise, look for a new job or start a side hustle. You can find a lot of advice and opportunities online and in your local community.