Saving money might seem like an insurmountable obstacle, but it’s never too late to make positive changes and set goals. Every savings plan should start with a goal to give you direction and keep you motivated. When you have a clear vision of where you want to be and the steps you need to take, you can set money aside and achieve your financial dreams.
In this chapter, we’ll help you set financial goals and show you how to budget and save money. If you want to learn how to save money on insurance, we’ll be happy to help you at David Pope Insurance.
Financial goals are how you spend and save money to reach the desired outcome, either in the short term, long term or both. Examples of financial goals include saving for retirement or creating an emergency fund. You may have several financial goals at once, and your goals might change over time.
Setting a financial goal mainly involves sitting down with a pen and paper and mapping out where you are, where you want to be and how you’ll get there. It helps to have financial documents like bank and credit card statements close by to evaluate your current situation.
When you’re ready, you can use this worksheet provided by Consumer Financial Protection Bureau as a template for setting a new financial goal, or you can take the following steps:
It’s essential to consider what matters most to you to identify your financial goals. For instance, is it more important to buy a new car or pay down debt? Depending on your situation, it may make sense to prioritize goals and focus on one at a time.
However, it’s also possible to work on several goals at once. You might create a list of short-term goals, such as saving for a vacation and buying a new office chair. A short-term financial goal is something you want to accomplish in one to three years.
At the same time, you might also work on medium-term and long-term goals. For example, you might plan to save enough for a down payment on a home over the next five years or invest a certain amount of money each year for your retirement. Write down all of your goals.
After you’ve identified what you want to accomplish, examine your current financial situation and assess your income, budget and net worth. By knowing where you stand financially, you’ll know which goals you can realistically meet in your desired time frame. You might also decide to reduce some of your expenses or find another income source to reach your financial goals.
After you’ve narrowed down your aspirations, turn them into SMART goals. SMART stands for specific, measurable, achievable, realistic and time-bound. SMART goals are meant to help you focus, stay motivated and determine a clear path towards success. The National Endowment for Financial Education provides a worksheet to help you set financial SMART goals.
Don’t forget to track your spending and monitor your progress. If you’re struggling to meet your savings goals every month, make adjustments or consider ways to increase your income.
Your personal savings is money set aside for major non-emergency expenses, and it should be kept separate from your retirement savings and emergency fund. You might allocate funds to your personal savings account to save up for a vacation or a home renovation, for example. A personal savings plan is your way of saving enough money to reach a goal.
It’s important to develop a savings plan based on your personal financial goals so you can prioritize goals and save money in the right places. As you set SMART goals, you’ll also discover how much you need to save. For instance, if your goal is to add $2,400 to your emergency fund in a year, you can plan to save $200 a month to reach your goal.
Overall, goal-setting can help motivate you to follow through with a savings plan.
A personal savings plan is for items you want or need that you can wait for, while household savings should be for home repairs and maintenance. Before you create a personal or household savings plan, you need to look at your budget and make sure you can also put money into an emergency fund. You should have a savings plan for an emergency fund before setting other financial goals.
To start any savings plan, you may first want to open a savings account for the specific goal. You might find it helpful to have a savings account for each financial goal at your bank, so you can track savings and spending easily. Once you have a savings account, set up a monthly automatic transfer from your checking account.
Most households can’t avoid buying groceries, but fortunately, it’s easy to reduce a grocery bill. Buying groceries in itself can help you save money on food. According to a recent survey, 78% percent of Americans say they are saving money by not going out to eat. Still, there are plenty of ways to save money at the supermarket. Here are some tips:
According to the Consumer Expenditure Survey, households spent an average of $2,094 on fuel and motor oil in 2019, or about $175 a month. If you use your car a lot for work or other reasons, you can try the following money-saving tips to reduce your monthly gas bills:
For many households, utilities take up a good portion of their income. According to the Consumer Expenditure Survey, Americans spent about 6% of their income on utilities in 2019. For someone who makes $40,000 a year, that represents $200 a month. While it would be nice to have an extra $200 to stash away each month, you likely don’t want to give up electricity. Instead, you can reduce your electric bill in the following ways:
Your water bill amount depends on factors like how much water you use and where you live. While you may not be able to change the cost of water consumption in your area, you can take steps at home to cut down on your water bill. Follow these tips:
Are you yet to buy your first home? If so, you may need time to save up for the down payment and closing costs. Here are steps you can take to save money for your house-buying goals:
Car prices vary greatly and depending on the vehicle’s condition, make and model. Before you start saving up for a car, you need to decide what you can afford. Your car budget will help you eliminate choices out of your price range. Be sure to consider the cost of insurance, maintenance, taxes, registration fees and other related expenses. Here are tips to help you save for a car within your budget:
Raising a family brings a lot of joy — and many expenses. According to the U.S. Department of Agriculture (USDA), the cost of raising a child is around $234,000, and this amount doesn’t include college. If you break this down into 18 years, it takes about $13,000 a year to raise a child. Considering the costs, it’s a good idea to start saving for a child as soon as you can. Here are steps to save money for kids and things to consider:
The average American spends 20 years in retirement, yet only 40% of people have calculated how much they need to save for retirement. If you haven’t started a retirement savings plan yet, try not to panic. It’s better to start saving for your retirement now than never.
First, know how much money you need to save for your retirement, which may be 70% to 90% of your current income. So, if you plan to save 70% of a $40,000 annual salary, you’ll need $560,000 to retire for 20 years. However, you might want to save more or less than this amount depending on how much you plan to spend during your golden years.
To save money for retirement, sign up for your employer’s 401(k) plan and contribute as much as you can afford. If your employer offers a pension, make sure you understand how it works. If you don’t have retirement plan options through your employer, consider contributing to an individual retirement account (IRA). Often, you can deduct the money you contribute to your IRA from your taxable income every year. This means you’ll pay less in taxes.
Once you’ve established financial goals, you need a way to reach them. To sum up this chapter, here are 10 ways to save money that just about anyone can apply: