Saving money remains one of the most essential financial habits that you must adopt. You won’t realize how important it is to save until it’s time to make a big purchase. Whether you need a new car or want to pay for your child’s college tuition fee, you may never achieve your objective if you don’t know how to set a savings goal.
I’m happy I got used to saving money at an early stage. I was barely 14 when I began stashing dollar bills in a piggy bank. Growing up with this habit, it has been easier to achieve my money goals because I’m always financially prepared.
In this post, I will be guiding you through the steps to set and reach your savings goals. Even if you have never had a major savings goal, you will find helpful tips here that can give you insight into how to manage your financial situation and build realistic savings goals.
What Is A Savings Goal?
A savings goal can be considered as a simple financial plan that entails saving certain amounts of money regularly with the sole aim of making a big purchase in the future. People save for new homes, college education, retirement, and any other important expenditure.
Why Is It Important To Set A Savings Goal?
Knowing how to set a savings goal is important because that is the only way your financial goals can be accomplished. It also gives you a clear perspective of how to cover a major expenditure.
For instance, if you want to buy a new piece of furniture, it won’t be possible to purchase it outright from your paycheck. You have to save over a set period of time until you have enough cash (other than your salary) to make your purchase.
How To Set Savings Goals
If you want to watch your savings grow, you must prioritize it as an important goal. To help you hit your next target as you begin to save money, here are steps and tips on how to set savings goals successfully:
Step 1: Name Your Goal
The initial aspect of setting a savings goal is to understand what you are actually saving for. It wouldn’t make sense to just keep saving money without a direction as to what you specifically want. This is why you must begin by naming your goal.
If you want to get a car, state it clearly. If you want to move into a more expensive apartment, make it clear. When you name your savings goal, it could serve as a form of self-motivation to keep you chasing that goal.
Step 2: Determine How Much To Save Every Month
Once you’ve decided what you are about to save money for, the next thing you must do is determine how much you have to take out of your paycheck every month in order to achieve your goal. Ignoring this factor means you aren’t even ready to figure out how to set a savings goal in the first place.
Let’s assume you want to get a car, and it’s going to cost $30,000. The question you need to ask yourself is how much you can save every month to realize 30 grand as soon as possible. Let’s do the math. If you are to save $2,000 every month, it will take you 15 months to achieve your goal.
This is just a hypothetical example. The amount of money you are saving should be dependent on your monthly cash flow. Also, bear in mind that you have to make sure your savings goal is feasible. You can’t save 2 grand every month when your salary is just $5,000. That would be an impossible goal for you to reach.
Step 3: Set Up A Standing Order
One of the steps to hit your savings goals is to set up a separate savings account. But more importantly, there should be restrictions preventing you from accessing your money easily. Remember, it’s your “savings”. It’s not something you want to tamper with at every slight inconvenience.
When you have limited access to your savings, it’s easier to hit your goal on time.
Step 4: Find The Best Place For Your Savings
Except you are a kid saving a few bucks in a jar, you have to be concerned with the growth of your savings. Finding the right financial institution or investment platform where your savings can grow faster is important.
To choose the best place for your savings, you have to consider how much time it would take to reach your goal. For example, if you have a short-term goal (up to five years), you can go for a savings account, term deposit, or a cash ISA.
For long-term goals, you want to consider choosing investment options such as shares, bonds, or funds that will certainly grow your money and protect it from inflation over time.
This is how to set up a savings goal.
How To Reach Your Savings Goals
Knowing how to set a savings goal is one thing while making deliberate efforts to reach the goal is another task. Here are some top tips that will help you reach your savings goal on time:
1. Set A Deadline
One of the determinants of goal-setting is timeline. You have to decide how long it would take you to accomplish your savings goal. Saving for a car would take maybe one or two years. But saving for retirement could take up to 3 decades. You shouldn’t chase after a savings goal without deciding when exactly you want it to be achieved.
Setting a deadline shows the relevance of your goal, and it’s also an effective way to keep you motivated and focused until you achieve what you want.
2. Create A Different Account For Each Goal
If you want to learn how to reach your savings goals, you might want to set up a different savings account for each of them. Tie each of your savings goals to an account. Whether it’s for a vacation, house, or car, having multiple accounts helps you to divide your resources and distribute them to each goal simultaneously.
In some cases, however, you may have to prioritize a savings goal over another. For example, before contributing money toward your car purchase, ensure you are meeting your retirement savings goal.
3. Track Your Goals
As you figure out how to achieve your savings goals, don’t forget that you must track your progress.
At the end of the month, look at your accounts to confirm if you saved the intended amount. If you did, that’s a good sign. You are on track. But if you are struggling to save the amount you planned, you have to examine your financial situation and make necessary adjustments to make sure your goals are realistic.
You can decide to cut down your expenses by avoiding spending categories in your budget, such as entertainment or giving.
4. Break Your Ultimate Goal Into Smaller Milestones
If you must know how to set realistic savings goals, you have to learn to take one step at a time. When your goals are broken down into smaller chunks, you will feel motivated to reach them.
For example, if you want to save toward a vacation that would cost $6,000, you can choose to break it down by saving $500 every month. At this point, you shouldn’t be worried about getting 6 grand. Instead, just focus on saving $500 at the end of the month. This way, there won’t be so much pressure on you to achieve the ultimate goal ($6,000).
5. Automate Your Goals
If you take automation out of your plan, then you aren’t ready to learn how to set a savings goal. Since you have a lot on your mind, you can’t always remember to set aside money for your goals. The best option is to automate the savings by setting up automatic transfers and deductions. Besides, when you move money automatically to a savings account, the money stays out of sight, so you won’t be tempted to spend it.
Ways To Stay Committed To Your Savings Goals
Sometimes it’s difficult to stay committed to your savings goals when you are distracted by other financial obligations. Notwithstanding, here are some helpful tips on how to say focused on your savings goal:
1. Start Early
Planning and preparation takes time. If you want to achieve a major financial goal, you should start early.
Some time ago, I needed to get a mini studio set up for a new podcast I wanted to start with a friend. The expenditure for this goal was around $1,500. Even though this wasn’t a huge amount of money, and the podcast was supposed to begin in 6 months, I decided to start saving immediately.
Starting my savings goal earlier made it easy for me to get to the finish point. I wasn’t overwhelmed or pressured by a deadline. More importantly, I was able to save small amounts of money conveniently since I had enough time to reach my goal.
Even if you know how to set a savings goal, you must always respect the time factor by starting early. That’s how you stay committed.
2. Track Your Spending
As soon as you decide to start putting money toward a savings goal, you must take a look at your spending pattern. The truth is, you can’t even determine how much you are supposed to save every month until you can monitor your spending and limit your expenses.
If you earn $5,000 every month and you need to contribute $450 to a savings account, you must make sure that your monthly expenses do not affect this financial commitment. This is where living below your means comes in. You have to cut out unnecessary bills and focus on your essentials to free up cash for your savings.
3. Pay Off Debt
This is one of the top ways to stay committed to your savings goals. If you have to pay off debt every month, chances are that you may never accomplish other major savings goals. After paying your bills and making your monthly minimum payments, you may have nothing left. Hence, it’s advisable to clear your debts or at least one of the balances to stay committed to your savings goals.
On the other hand, paying off debt can also be a savings goal. As long as you don’t have any other financial goal in mind aside from your retirement plan, you should focus on becoming debt free.
4. Be Consistent With Your Savings
Consistency is one of the crucial skills you need if you must know how to set a savings goal and achieve it. Let’s imagine you need to save $10,000 within a year. You have to deposit at least $840 every month to reach this goal. However, if you skip some payments, you will certainly not be able to accomplish your goal within a year. This is because you lack consistency.
Earlier, I talked about automating your savings. That is one effective way to remain consistent with your savings goal. You should also make sure to set realistic goals in the first place. No matter how hard you try to be consistent, if the goal is unrealistic, it won’t be achievable.
5. Watch Out For Fees
This is one last detail you must not forget as you figure out how to create a savings goal. You might not want to hear this, but it costs money to save money. There would be monthly maintenance fees on your savings accounts. Depending on where you save your money, you could also be faced with deferred sales charges with mutual funds.
Mind you, this is completely normal. But to cut down costs, you don’t want to have too many savings accounts. Except it’s a major savings goal, you don’t need a separate account for it. Also, if your money is saved in a high-yield interest account, that’s reasonable.
Wrap-Up: How To Set A Savings Goal
Saving money doesn’t mean you have to deprive yourself of a comfortable life and be too frugal. You can still have your morning coffee and a few beers by the weekend. However, always prioritize your financial needs and live below your means. If you keep spending more than you can afford, then learning how to set a savings goal becomes a waste of time. You won’t even have money to put toward your savings goal.
So, in a nutshell, live moderately and manage your resources wisely.
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