About one-third of American households have saved $1,000 or less. Between long-term and short-term financial goals, $1,000 simply isn’t going to cut it. What about retirement, real estate down payments, or even a simple emergency fund?
The problem isn’t that people don’t want to save; it’s that they don’t know how. Setting financial goals — and reaching them — requires determination and strict budgeting. If you’re saving money without any thought, you could experience a financial disaster down the road.
It’s time to start saving for a better future. Here’s how to achieve financial goals of all shapes and sizes.
1. Identify Personal Financial Goals
It’s easier to reach your financial goals when they’re set in stone. Otherwise, you won’t have a good idea how much to save — nor why you’re saving in the first place.
First, understand your financial situation. Take stock of existing debt payments, personal savings, and future desires. This information will give you a good place to get started.
In general, you want to start with short-term financial goals first. These provide financial security as you progress towards larger objectives.
For example, start with an emergency fund. An emergency fund should cover three to six months of your living expenses. You’ll want this fund in case of unemployment or unexpected expenses, such as a medical emergency.
What’s next? Take a look at this list of common short-term and long-term financial goals.
- Pay off credit card debt
- Erase student loans
- Amass savings for a home down payment
- Prepare for retirement
- Fund a dream vacation
Identify your personal financial goals. From here, you’ll be ready to divide and conquer.
2. Set an Attainable Timeline
Now that you’re done setting financial goals, it’s time to start achieving them. The process begins with an attainable and realistic timeline.
You can accomplish short-term goals within one or two years. Long-term goals may take several, or even decades. But these are just guidelines, and the amount you save each month will ultimately determine your personal timetable.
Figure out how much you must save to reach these goals. If you’re starting from no savings at all, you may decide you need $8,000 for your emergency fund. That’s a baffling amount, but it’s more manageable than you may think.
If you save $330 every month for two years, you’ll have a complete emergency fund.
Then calculate how much you can save each month with your current salary. Always look for ways to reduce your expenses if you’d like to save more and reduce the time it takes to reach your goals.
Once you know how much you can save every month, and how much you need, you can estimate a realistic timeline for all your goals.
3. Follow a Budget
Maybe you’ll get a big promotion, a new job, or a better salary in the near future. Unfortunately, there’s no way to tell for certain. When determining a budget, it’s safest to assume your income will stay the same.
You’ll want to establish a budget to ensure you’re saving enough every month. Otherwise, you could miss your timeline entirely.
Allocate your after-tax income according to the 50/30/20 budget plan. This covers your needs, wants, and savings respectively. If you find that you are spending more than 50% of your income on needs, such as housing and debt, then you’ll have to make changes to the other proportions.
Put your expenses and paychecks in budgeting software or even a simple excel sheet. Once or twice a month, input your new finances. By keeping tabs on your budget, you can monitor your savings according to your budget timeline.
4. Make It Automated
The less you have to think about saving, the better. Once you’ve established your budget, you can set up automatic bank transfers to handle the hard work for you.
Let’s say you set aside $330 every month for your emergency fund. Rather than making the transfer yourself — or worse, leaving it in a checking account — you can let the bank do it for you.
This ensures you’ll always save the correct amount every month, with no extra fuss on your end. Just be sure you monitor your budget so you know you’ll have enough saved for the monthly transfer.
5. Earn Interest
To maximize your savings, put your money to work. Even for a short-term goal, seek out a high-yield savings account. You’ll earn a respectable amount of interest while the funds accumulate.
For long-term savings goals, which tend to take more than a few years, don’t leave the money in a savings account. Instead, incorporate the funds in your current investment strategy. Compound interest can lead to some big gains, even in a few years’ time.
Optimizing interest with your short-term and long-term goals can be a complicated affair. Turn to this wealth management group if you need help navigating your financial objectives.
6. Treat Yourself
Saving is mentally draining. Are your friends buying everything their hearts desire? You may long to do the same, but you’re trying to save your funds for a far-off purchase.
That’s why it’s important to incentivize yourself.
When you reach one of your goals, give yourself a cheat day. Save a little less that month and splurge on a nice reward you’ve been eyeing up. It won’t set you back that far, and you’ll get the emotional boost you need to stay on track.
Achieve Your Long-Term and Short-Term Financial Goals
Setbacks are common even with stringent financial planning. The important thing is to continue saving after an unexpected expense throws you for a loop.
Sure, it may take a bit longer to reach your long-term and short-term financial goals. But you can do it. Financial well-being is in reach.
You just need to get started.
Looking for more financial advice? Scour our website for more ways to meet your saving goals.