Tips and strategies to reach your savings goals
Get a stronger grasp on the differences so you can learn how to set a savings goal that works for you.
Chapter 2: Goals vs. aspirations
This is it. We're talking about the motivation and specifics of budgeting that works for you all year. Aspirations are the very reasons why we build our budgets. And, they're accompanied by well-defined savings goals.
Watch the video to get a stronger grasp on the differences so you can learn how to set a savings goal that works for you.
Start saving when you're young
If you want to buy a house, know your score. "If a home purchase is in your future, check your credit report now", urges Marc Shaffer, a certified financial planner in Overland Park, Kansas. You'll be able to review your credit history and report any errors or omissions to the credit bureaus. You'll also have more time to improve your score. A good credit score can improve the Annual Percentage Rate (APR) you get on your loan, which can save you thousands of dollars in the long run.
Be budget-savvy. Identify where and how you are spending your hard-earned dollars so you can plug money drains. "You really do need to track everything and create categories to put things in perspective," says Shaffer. Software and apps such as Excel, Microsoft Money and many more make budgeting and tracking expenses easy and automated.
Reign in credit card debt. Review your credit card statements to assess which debt you can tackle first. Get a feel for the payoff amount needed to reach your debt repayment objectives by using an online calculator.
Get insured. "As a young professional, your biggest asset is not your retirement account, but your ability to earn money," says Shaffer. Help protect your paycheck by obtaining disability and life insurance coverage. Disability insurance coverage replaces a portion of your income if you cannot work due to a disabling accident or illness. Life insurance can offer long-term security for you and your family in the event of the insured person's death.
Saving all year
Step 1: Think through your non monthly expenses.
These are expenses that don't happen every month, but you know they are expenses you will have eventually, in the short or long term. Things like an upcoming destination wedding, holidays, a car or home repair. As best you can, list them out for the next few months, or through the upcoming year. The farther out the planning, the better.
Step 2: Think about how much you'd like to have, or know you'll need, for each of these expenses.
Capture that amount next to each non monthly expense.
Step 3: Take the total of your non monthly expenses, and divide each one by the number of months until you'll need the money.
This will give you the amount you'll need to save each month to be prepared for this expense when the time comes. *For example, $600 for holiday money would be $50 a month if you start saving in January ($600/12 months = $50).
How to begin
Decide what you want
If you're wondering where to start, it's with that long-term goal. Sit yourself down and ask serious questions about the far-off future, and be conscious of where your mind goes. If you're having trouble honing in on that goal, check out Financial Goal Setting for more tips on clearly seeing your long-term financial goal(s). Once you've landed on your goal — tell your friends, write it down or make a dream board if that's your thing. Do whatever it takes to continue reminding yourself of the big picture. Then, set a deadline. Break down your goals into tasks and map out a timeline. Before you know it, you'll be well on your way to a brand new path of good saving habits.
Set small goals
When breaking down your goal into smaller, digestible tasks, remember to keep it simple. Setting the bar too high can de-motivate and discourage. When organizing your small goals, "SMART" is a helpful acronym to use as you get organized:
- Specific: A specific goal is something clearly defined or identified.
- Measurable: A measurable goal can be quantified.
- Attainable: An attainable goal is something that is possible.
- Realistic: A realistic goal is something that can be achieved by you or others.
- Time bound: A time bound goal has a deadline.
They need to be actionable tasks that feel doable, not daunting.
On top of being on track to your reach your dreams, achieving small, bite-sized goals also adds to your happiness. According to a journal studying motivational functions, they found that small amounts of success release dopamine which is linked to pleasure and — more importantly — motivation.
So instead of leaving the future to, well, the future, start saving for your long-term financial goal(s), today. And remember to think small to win big.
Your chapter 2 checklist
- Watch the Goals vs. Aspirations video
- Download the Budgeting 101 Worksheet
- Set your goals
You can have a budget — and still live the life you want to live.