One of the basics of building a financial foundation is saving. When you set savings goals, you’re more likely to develop long-term money habits that will benefit you. You’re also more likely to reach your objectives.
If you’re looking for help in becoming a better saver, here are some tips on how to set savings goals.
1. Choose a specific savings goal
First, define your goal.
Whether it’s a vacation, a college education for your kids, a down payment on a house or retirement, decide what you’re working toward rather than choosing a nebulous number, or a vague idea of “saving more.”
“Find out what you want your money to do for you,” says Amy Irvine, CFP, owner of Rooted Planning Group and a financial adviser on the Wealthramp network. “Have the emotional conversation with yourself about your money and what you hope it accomplishes.”
2. Set a savings deadline
Next, craft a timeline for accomplishing your goal. Some goals, like buying a car next year, might be shorter term. Other goals, like reaching your retirement number, might take longer and require more ongoing planning.
“Setting yourself up for success means a plan and a schedule,” says Ari Baum, CFP, and founder and CEO of Endurance Wealth Partners. “Figure out your monthly or weekly contributions to reach your goals.”
If you know you need $10,000 to buy a car next year, you may need to set aside $833 a month for the next 12 months. For retirement, you might decide to use a calculator to estimate how much you need to invest for the next 30 years. If you want to save $1 million, with certain assumptions related to investment performance, that might mean setting aside $600 each month.
3. Create a different account for each goal
Baum also recommends setting aside different financial accounts for each goal, especially since it’s likely that you’re saving for more than one goal at the same time.
“Saving for multiple goals can make things tricky,” Baum says. “Break down each savings goal into an account, whether it’s for a car, house, vacation or anything else.”
That way, you can decide how to divide your resources into the accounts based on your savings timeline and the amount you need to reach your goals.
In some cases, you might have to prioritize some goals over others. For example, before increasing how much you put toward a child’s 529 college plan, you want to make sure you’re meeting your retirement savings goal. If you need a new car, you might need to prioritize that savings goal over putting more money toward a vacation.
4. Track your goals
Keep track of your progress so that you can see where you stand and celebrate your progress. As you see your success, you’re more likely to feel good about continuing. And, of course, once you reach your goal, that feeling can encourage you to keep working toward your other goals — and setting new goals.
“Once you get the ball rolling, saving money can become addictive,” Baum says. “It’s fun to watch your savings pile up as you make contributions over time.”
5. Break your goals down into smaller chunks
Rooted Planning Group’s Irvine recommends breaking down your goals into smaller chunks so that you can feel more empowered to reach your goals.
If you want to take a great vacation for $5,000 in 12 months, you need to set aside around $416 each month. For some savers, though, that can feel like a daunting task. Where do you get that money? After breaking that out into a more manageable weekly contribution of around $104, you can then evaluate your situation.
“Identify where and how you’re spending money in a way that isn’t serving you,” Irvine says. “With that knowledge, you can take different actions to find the money you need to meet your goal.”
6. Automate your goals
Rather than trying to remember to set aside money for a goal, consider setting up automatic transfers and deductions. You can create automatic transfers from a checking account to a savings account to occur on the same day each week or month, creating a situation where you don’t have to remember to make the move and take a separate action.
Brian Walsh, Jr., CFS, and senior financial advisor at Walsh & Nicholson Financial Group, points out that automatically moving the money helps it stay out of sight so you don’t spend it.
Walsh also recommends using an investment account when it makes sense for your situation.
“Set up an investment account, whether it be a Roth IRA, IRA or brokerage account, and have a set dollar amount going into that account each paycheck,” he says. “You can set up your bank account to automatically transfer to the investment account.”
While you might not feel comfortable using an investment account for shorter-term goals like vacations and down payments, automating your transfers can be a big help. When it comes to investing for retirement, though, you can have your money taken directly from your paycheck.
As you figure out how to set savings goals, the important thing is to set a strategy, stay on track and be consistent, Walsh says.
By creating a plan and making saving a priority, you’re more likely to develop habits that eventually put your money to work for you, instead of you doing so much for your money.
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