When it comes to money management, saving is one of the most important components. It allows you to build up a financial cushion that can be used to cover unexpected expenses, provide a secure retirement, and generally improve your financial situation. However, as important as it is, many people find it difficult to prioritize their savings.
After the bills are paid and the groceries are purchased, it can be hard to find even a little money to put into savings. But as you plan your budget for the month, having a savings plan can be key to accomplishing your financial goals. Where you put your savings and how much you save will depend on your financial situation. But there are things you can do to prioritize your savings goals.
Choose a Specific Savings Goal
The first step to prioritizing your savings is to choose a specific goal. This could be anything from building up an emergency fund to saving for a down payment on a home. When you set a savings goal, you’ll be able to make an action plan on how to achieve it.
Set a Savings Deadline
Once you’ve decided on a goal, you need to set a deadline for reaching it. Setting a deadline can help you stay motivated and on the path to success. It also allows you to track your progress, so you know how far you’ve come and can celebrate milestones when you reach them.
Track Your Goals
Tracking your goals is an important part of the saving process. By tracking your progress, you’ll be able to identify what works and what doesn't. One of the best ways to keep track of where everything is going, and see if it’s going the right way, is by sticking to your budget!
Budget and Utilize the 50/30/20 Rule
Creating a budget is an effective way to ensure that you’re using your money wisely. Utilizing the 50/30/20 rule is a simple and easy way to create a budget. This rule states that 50% of your income should go toward your needs, like housing and food. The next 30% goes toward wants, like activities and fun clothes. While the final 20% goes toward your set savings goals, whatever those may be.
Separate The Wants vs Needs
When creating a budget, it’s important to differentiate between wants and needs. Needs are the essentials you must have to live, like food, clothing, and shelter. Wants are things that you don’t need but can make life enjoyable, like a new car or a vacation. This isn’t to tell you that you can’t spend money on wants, just that you need to think about what you are spending money on. Budgeting is the key to financial success and part of that process is building different spending categories. Buying wants is okay, but you should be careful to not overspend. This way, you can spend money on the enjoyable things in life while resting securely in the knowledge that everything that needs to be covered is covered.
Break Your Goals Down Into Smaller Chunks
Breaking your goals into smaller chunks makes them easier to manage and track. For example, if you’re trying to save for a down payment on a home, break the goal into smaller steps. Set goals such as saving a certain amount per month or setting aside a certain percentage of your income. Trying to tackle big goals all at once can be overwhelming and discouraging, start small and work your way up the ladder of success.
Pay Off Your Debts
As part of your savings plan, prioritize debt reduction. Make extra payments on your high-interest loans while maintaining the minimum payment on everything else. Learn to have a balance between personal savings and paying off loans. Paying debt off as quickly as possible is great because it will help you save money in the long run and free up cash for other goals.
Plan for Emergencies
Ideally, you’ve set aside 20% of your income for different savings goals. But where should that money go? This will depend on individual circumstances, but many experts say you should prioritize saving for emergencies. In fact, experts recommend having enough money saved to cover three months of living expenses in an emergency fund. This emergency money should be readily available, while still being separate from the money you use every day. Putting your money in a separate account, such as a money market account or a traditional savings account, is a good way to keep it out of sight and out of mind. And it may help you earn some additional interest while it sits there.
Automate Your Goals
Making saving an automated process is one of the best ways to ensure that you stay on track. Many banks and financial institutions offer the option of setting up automatic transfers to your savings account. This will enable you to save without seeing it leave your bank account. It’s easier to save that money if you don’t see it in the first place!
How to Prioritize Your Money Savings Goals
Saving money is an important part of managing your finances. Setting specific goals, creating a budget, and separating wants from needs are all important components of saving successfully. Additionally, tracking your progress, breaking goals into smaller chunks, paying off debt, planning for emergencies, and automating your goals can all help you make saving a priority. By following these tips, you can stay on track and reach your savings goals.