Having clearly defined goals is a hands-down effective way to save money. By outlining specific reasons for saving and being organized in your savings strategy, you’re not just throwing money into a pot to blindly pull out whenever you want something. It means you have a feasible plan for managing your money and your goals.
Chances are you have multiple financial goals. Common ones include setting aside money for emergencies, funding a child’s education, building a retirement nest egg, buying a house or taking a dream vacation.
Once you can identify your goals, the next step is determining how to best reach them. Like the goals themselves, there’s no one “right” answer for how to do so – the path you choose depends on your unique circumstances and individual preferences.
Concentrate your efforts
You may want to focus on getting through your goals one at a time, in order of their urgency. The benefits of taking a single-minded approach to saving include feeling a sense of accomplishment when you achieve smaller or shorter-term goals. In turn, this can provide often-needed motivation to continue saving and get you on the path toward putting money away for bigger or longer-term goals. Seeing immediate results from your good saving habits can also help curb senseless spending that stands in the way of you meeting your goals sooner.
Completing a goal before moving to the next one can be especially beneficial if you’re in debt. Prioritizing debt reduction can cut the amount of interest you owe and gives you more money for other goals.
The potential downside of tackling your goals one by one is neglecting your financial big picture. While you may not be sweating the small stuff anymore, you could be doing so at the expense of more daunting goals, especially those like retirement that may be in the distant future.
To help ensure your success, don’t oversimplify your savings plan and give yourself enough time to reach larger, longer-term goals.
Divide and conquer
Alternatively, you may consider your goals equally important or prefer a more balanced approach to saving money. Taking on all your goals simultaneously ensures they each get some attention. After all, life is multi-dimensional, so it can make sense to reflect this reality in your savings plan.
However, if you’re not careful, you can spread your money out too far. The challenge is to properly distribute your funds across goals. Without a doubt, a multi-goal savings approach is more complicated, and it can be harder to manage all the moving parts.
First bucketing your goals by priority and timeframe can bring clarity and structure to your plan. Using a percentage method can also be helpful, where you divide your monthly savings amount across your different buckets, allocating the most to your needs-based goals.
No one size fits all
The route you choose when it comes to establishing a plan to meet your goals depends on your personal situation.
Part of a Financial Advisor’s role is to provide clients with invaluable advice and guidance in determining not just what their goals should be, but the smartest way to accomplish them.
We can work with you to tailor a savings strategy that makes sense for you. To learn more about how we can help, call our office today.