Budgeting: How to Save Money for Financial Goals
Do you struggle to save money for the bigger things in life? One of the most common things I hear as a financial coach is that people want to save more, but they’re not sure how to make it happen.
Whether it is for retirement, your child’s education fund, a home or home renovation, a vacation, a major life change, or anything else, it can be hard to figure out how to fit these goals into your budget.
Sometimes it’s because you get to the end of the month and you’re not sure where all your money left and there’s nothing left to save. Other times you think about transfering money to your savings account, but you just never get around to doing it.
That’s why I’m going to walk you through a process that will help you get clear on what your savings goals are and then set up a system to make it actually happen.
How to Save Money for Your Financial Goals
Find Your “Why”
When it comes time to make New Year’s Resolutions, many people state that they want to save more money. But saving more money is really more of an intention than a goal. Goals are more specific. They have steps and clearly defined objectives. If you want to save money, you have to know what exactly you want to achieve. You have to know why you are saving.
Ask yourself:
What are you saving money for? Is it an emergency fund? A house? Vacation? Home renovation?
Why do you want those things? For example, if you’re saving for an emergency fund, it might be because you desire security or you want to avoid the shame of racking up more credit card debt. A vacation might provide you with rest, the thrill of adventure, or quality time with friends or family. Imagine how the thing you’re saving for will make you feel. Write those feelings down.
It’s also important to get clear on your values to fully understand what you want out of life. Maybe money is important because you’re searching for security, or maybe you want more adventure in your life. Click here to sign up for my free “Identifying Your Values” worksheet that will help you determine your top life values.
Now you have your “why.” If you’re struggling to save for these things, it sometimes helps to create a visual to remind you and keep you motivated, especially if you need to reduce spending to save for these goals. Consider creating a vision board with images of what it is you want to remind you of your goals.
2. Identify how much you need to save
Add up the total amount you need to save and identify the number of months you have until you want to have the money saved. For example, if you want to buy a home in five years, the number of months would be 60 (5x12). If you want to add $3000 to your emergency fund by the end of one year, the number of months would just be 12.
Divide the total amount you want to save by the number of months. This gives you the amount you need to save each month. See example below.
To access the spreadsheet used in the example above, enter your email address in the form below.
3. Automate
Setting up automatic savings is the key to making it happen. Inertia, boredom, and forgetfulness can’t derail you if you make it automatic. There are two options:
Request that a portion of your paycheck go directly to a savings account. Most employers allow you to divide up your paycheck and have part sent to your checking account and part sent to a savings account. This is a good option if you just have one savings account for all of your savings and/or you’re too tempted to spend the money if it shows up in your checking account.
Set up a regular transfer from your checking account to your savings account. You can set up as many automatic transfers as you want. This is better for those who have multiple savings accounts and want a little more control. Just make sure to account for the money that will be automatically transferred out.
Anyone who has tried to start a new habit knows how hard it is. If you want to start a new workout routine, you first have to motivate yourself to show up. Then you have to motivate yourself to put on the right clothing or gather the right gear. Maybe you need to get yourself to the gym. Each step of the way requires a new commitment and provides another opportunity to give up. And then you have to repeat that every single time you want to work out.
Making things automatic is one of the best strategies for building new habits because it eliminates opportunities to give up.
That actually makes saving for your goals easy once you have the money to save. You can put your savings on autopilot and before you know it, you’ll have the money you need for your next vacation.
Tips:
To make sure that you have enough money to allocate toward savings, add it into your budget and account for the savings before you account for other discretionary spending.
If you find you don’t have enough, go through your budget and evaluate everything against your savings goal. For example:
Would I rather eat out twice this week or save for my vacation?
Is it more important to have an emergency fund for financial security or to go to this movie?
Would I rather buy a new couch I don’t need for an apartment I won’t stay in or put that amount toward the down payment on my new house?
Unless you are lucky enough to money coming out of your ears, managing your money is just a series of choices about what is important and the systems you put in place to make your dream life happen. You probably won’t be able to buy everything you want in life, but hopefully, being intentional with your money will help you be able to afford more of the things that make you happy.
Ready to learn more about saving money and budgeting? Check out these related posts:
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