(Tiny Tips) – Savings Goals – Setting specific savings goals will help you start saving. If you deposit your money in a bank regularly, it may be easier to withdraw your money for a variety of reasons. It’s easy to overspend and use some of the money you save to save. For these reasons, it’s important to save for specific goals. You might be working toward multiple goals at the same time, or focus on a specific goal you want to achieve.
Choose a Specific Savings Goals
You need to determine what you are saving money for. Your savings goal might be a down payment on a home. You might be saving up for your dream vacation or buying your next car. You may be saving for retirement or an emergency fund. You might save for all of these reasons.
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Once you know what you want to save money for, you need to determine how much money you need to achieve each goal.
Create a Savings Timeline
Once you determine your savings goals and the amount you need to save, it can be helpful to create a timeline to achieve your goals. This will give you extra motivation to actively work toward your savings goals.
Some schedules are simple. For example, you might want to take a vacation in one year or make a down payment on a house in two years. For other goals, such as retirement savings or an emergency fund, you may want to set benchmarks and dates for reaching those benchmarks. For example, you might decide to put $50,000 in a retirement account at age 30.
Set Monthly Goals
In order to meet your savings goal timeline, you need to determine how much you need to save each month. For most of your goals, this should be fairly easy, but your retirement account will need to be calculated to account for your contributions and increasing returns as they grow. Financial advisors and many online calculators can help you.
Find Extra Money in Your Monthly Budget
Combine all of your monthly savings goals into one payment. You need to find this money in your budget. Before you get a chance to spend your money on something else, you should set it up to happen automatically. Some companies deposit a portion of your check directly into a savings account, or you can have your bank automatically deposit an amount into a savings account every payday.
Use the Right Savings Tool
You should also find the type of account that fits your savings goals. If you want to save money for more than five years, consider mutual funds. You may also want to open a high-yield savings account to earn more interest on your savings each month.
A money market account at a bank or credit union often offers great returns. Historically, certificates of deposit (CDs) have provided good returns, but you should compare them to other accounts. Most of these options offer lower returns than other investments such as mutual funds, exchange-traded funds, and stocks, which have historically provided higher annual returns.
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You don’t want to put emergency funds in a CD account or other account that prohibits withdrawals. If you need to withdraw your funds before the term expires, you may be subject to penalties. Savings bonds also don’t offer the opportunity to quickly achieve your goals.
No matter which savings vehicle you choose, you can set up automatic monthly transfers to make transferring money easier. Just make sure you have enough money to meet your monthly savings goal so you don’t overdraw your account.
Track Your Goals
If you have multiple savings goals, you have several options. You can choose to deposit all your money into one account and then keep a record at home of which amount was used for which goal. Or you can choose to set up separate accounts for each savings goal.
For example, you could choose a savings account just for emergency savings and another account for saving for a house or vacation. This will help protect the money you’ve saved for these personal goals so you’re not constantly dipping into areas of savings like your emergency fund.
It always helps to reward yourself when you hit some basic milestones along the way. This can help you stay motivated and move toward your larger savings goals. Stay on the right track.
SOURCES
Tiny Tips uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles.
- Vanguard. “Broaden Your Portfolio With CDs & Bonds.”
- Investor.gov. “Mutual Funds.”