Yearning to own your own home? Expecting a baby? Dreaming of a trip to explore the Great Barrier Reef? Saving for dreams is one of the most important and challenging financial endeavors. While our intentions are good, everyday expenses can make it difficult to save for important life milestones that may be years or decades away. Let’s walk through the steps to begin saving toward your goals.
Step 1: Assess the “Now.” Take a solid look at your current financial status. You have to know where you currently stand before you can set your goals. Make a list of your assets. These are things you own that can be turned into cash, such as bank account balances, investments, real estate, vehicles, etc. List the balances at market value, for example, what your car is currently worth, not what you paid for it.
List everything you owe, including student loans, mortgages, credit cards and medical balances. Do not include utilities or other monthly bills, unless they are past due.
Having a clear picture of your current financial situation can help steer your goals.
Step 2: Prioritize Financial Goals. This is the fun part. Take some time to consider your dreams and make a list. Dream big! Write down everything you want to do that requires saving, whether it’s next month, next year or far into the future.
Next, review your list and pick out the top few goals. List the amount you want to save next to each goal. Take your time and select the goals that you are most motivated to achieve. Every goal may not be exciting. Paying off revolving debt may be a priority to reduce your stress and prepare you for achieving your dreams later. Don’t be overwhelmed by the length of your list. For now, it’s important to focus on a few goals.
Step 3: See Where Your Money Goes. For two months, track your spending—all of it. Whether a monthly bill, a new pair of shoes, dinner out or the kid’s lunch money—write it all down. The key is to be consistent and record every dollar you spend.
Next, sort your expenses into categories, such as groceries, car, utilities, entertainment and clothing. Indicate the average monthly amount you spent during the tracking period in each category.
Now, take a look at your category totals. Do some of the amounts surprise you? Can you continue spending in this manner AND save for your goals? Tracking your spending brings to light expenses that don’t align with your priorities and serves as a source for identifying areas where changes can be made to allocate money toward saving for your goals.
Decide how much you want to save each month toward your goals, and review each category to see where you can make some changes to reallocate toward savings.
Step 4: Create a Spending Plan. Developing a spending plan ensures you save and spend money thoughtfully and purposefully. Good recordkeeping is imperative to track how you want to spend your money versus how you actually spend it, so choose a tool that is convenient for you and easy to access, whether it’s a budget app, spreadsheet, or paper and pen.
Take the spending categories you created in step three and indicate the maximum amount you want to spend each month in each category. Be sure to include saving as a category.
Tips for Success
- Simply cutting back isn’t enough. Specific goals must be set, along with a plan to reach them.
- All family members must be involved and working toward the same goals. Even children should be included in helping to meet family goals.
- Goals must be gradual and realistic to avoid burnout before reaching them.
- Don’t expect to get it right the first time. You may need to tweak your budget during the first few months.
- Think of your savings as a monthly bill. Set up an automatic transfer to savings, or have part of your paycheck direct-deposited to savings. This gets your money out of sight and out of mind.
- Keep your goals in mind. You may be tempted to overspend “just this once,” but keep your eye on the prize.
Now is the best time to start saving. Even a small amount can begin building your savings and make reaching your milestones more achievable.
