This is a question that people just starting to get serious about their money often ask. How do I set an achievable savings goal? Along with this very consistent question come a few themes.
- I don’t know what I need to save
- My budget is very tight
- I don’t know where to put my money when I save it
How do we make realistic savings goals that both challenge us AND give us a chance at success? it can sometimes be more difficult than we realize. Let’s tackle each of these three issues in turn.
I don’t know what I need to save
A very important first step in working on your savings is knowing what to save for. There’s not a magic number per age or income, it’s much more important to know where you’d like to be in 5 years and what amount of savings you’ll need to get there.
Step 1: Picture yourself in 5 years. Consider what your most important goals are and write down how your current financial portfolio will need to change to achieve your goal.
Would you like to be in your own house? Do you picture children? Would you like to be free from debt? Will you need $10,000 for a down payment? How much debt do you need to eliminate?
Don’t pick an arbitrary number. If you don’t have a vision of what you’re saving for it will be difficult to stay motivated. Sit down with a pen and write out your dream on paper. Attach numbers and a timeline to them and then figure out how much you’ll need next year to head toward those goals.
My budget is very tight
We would imagine most of us feel our budget is pretty slim. A tight budget is often a matter of perception rather than reality. You can make $30k a year and feel things are tight, just as you can make $100k annually and feel the same way.
We all feel like we don’t have enough, but the truth is most of us do.
What would it look like to consider savings goals a necessity the way we consider food or housing? Even if you make $700 a month, your first thought is what type of apartment you could afford and what you would spend on groceries.
If we consider saving ESSENTIAL the way we consider food and housing we won’t have a problem putting it into our budget. Change your attitude and you’ll change your outlook.
Step 2: Look at your monthly income. Subtract all set expenses (rent, utilities, debt payments etc). Before you add in entertainment, clothing, coffee, gifts etc. make sure you include savings. If the amount you’re able to save doesn’t allow you to reach your goal, consider ways you might build side income or cut expenses from your budget. We’ve already written about how to look for financial gamechangers, try some of our ideas.
Keep in mind, even if you’re going from saving nothing to saving $25 a month you’re improving. You’re changing your future. It’s always worth it.
I don’t know where to put my money when I save it
Another important part of setting realistic savings goals is actually putting the money into an account that is deemed ‘savings.’ It needs to be in a separate account that you will not touch. Make sure that you flip that switch in your brain that says this money is now saved and therefore unavailable to you for anything except your savings goals.
Step 3: Pick an account where you will put all of the money you are able to save each month. Ideally find an account separate from your checking account where it will be difficult to access in a pinch.
Also take advantage of an account that has a better interest rate than a checking account! Ally Bank is one of the best and offers 1.05% interest on their online savings account.
Challenge Yourself, Add Accountability
Write down your goal and try to stretch yourself. Try to attain something you’ll be proud to look back on and say “I did it.” Make your savings goal a little bit higher than you think you can reach, if you come up short you will still have made tangible progress. Share you goal with someone you trust and invite them to help keep you on track. If you need someone to help leave us a comment and share you goal, we’ll keep you accountable.
If you need help setting a savings goal leave a comment and we’d be happy to help.