Here’s tips on how to hit your savings goal:
I want to talk to you about savings today. I’ve talked about budgeting. I talked about using cash to pay for your stuff, but I haven’t shared how to hit your savings goal. I love savings, I love investments and I love compounding interest. It’s amazing. But I’m going to keep it simple today. I’m only going to talk about your savings account at your local bank.
There are three different types of savings you should have. Now these can be in the same account or you split them up. I have 2 savings accounts.
FIRST: emergency fund. Now there are many different opinions about emergency fund accounts. My belief is that they should be accessible but not too accessible. I don’t want to be able to pull cash from the account without giving it too much thought. But you should be able to get to it when you need it.
TIP: When starting out, make it connected to your checking account. That way you can easily transfer money into it. Be sure to be mindful when you’re pulling money out.
There are many places to have an account. At your local bank is an option. Another is at an online bank or through a brokerage account with your investments.
Your end goal is to have at least ONE YEAR’s worth of living expenses saved up. When you hit the goal then I would recommend talking to your financial planner. You may want to put the money into an account to earn some extra interest. If you’re not at that point yet then I would suggest leaving it with your local bank.
SECOND: start with a small goal. Make it attainable. I would recommend starting with $1,000. That seems to be a popular amount for deductibles. If you do have an emergency of more than $1,000 then you at least have a sizable down payment.
THIRD: Set a date to hit your mark. Look at the budget you created a few weeks ago. Do you have any extra money each month? Can you cut back on eating out to free up some money?
Let’s say you can put back $100 a month. So take your goal ($1,000) and divide by what you can do each month ($100). That will be how many months it’ll take you to reach your goal (10 months).
FOURTH: Stick to it. This is the most critical step. You have to commit to it.
Tickets for your favorite band is not an emergency. The new shoes that just hit the clearance rack are not an emergency. Your fridge going out is an emergency. Your husband getting injured and needing to go to urgent care is an emergency.
Be wise with what makes up an emergency. Keep at least $1,000 in your account at all times. If you pull from it (for an emergency) then quickly replace it.
It’s important to have financial goals, too. Financial goals are different than saving for your emergency fund. These goals can be paying down debt or saving for a home. While emergency funds are just that – funds for emergencies. Once you have your debt paid off and reach your other financial goals, or almost reach them, then start increasing your fund.