Setting savings goals will keep you on track to reach your financial dreams. Take some time to think about what you really want to have in life. Is it a new car when you graduate, your own home, or peace of mind when life throws a financial curve ball your way?
The earlier you begin saving, the faster you will reach your goal! Even if you can spare only $5 out of each paycheck, it’s important to get started. By consistently saving a designated amount, your savings account will grow, and you will be motivated to find ways to save more.
Save for emergencies
Unexpected expenses can be stressful and create havoc on your finances. An “emergency” fund allows you to handle unexpected expenses, such as a blown tire or a worn out appliance, without incurring unnecessary debt. A general rule of thumb is to have enough money in your savings account to cover at least two to three months of living expenses. This may seem overwhelming, but remember, it is a long-term goal. Set a short-term goal of saving a few hundred dollars in your emergency savings account.
Save for your bucket list
Hiking the Grand Canyon, buying the perfect engagement ring, or snow skiing in Vancouver…the sky’s the limit when it comes to dreaming. However, your bank account should be the limit when actually fulfilling those dreams. The anticipation and satisfaction of saving for your dream will make it even more exciting, and you will avoid the aftershock of a large debt.
Save for retirement
If you work for a company that has a retirement savings plan (401k)—participate! Many companies offer payroll deduction plans, and some even match your contributions to a certain level. Take advantage of the power of compounding by starting your retirement fund early, and you will be amazed at the result.
Save for a Down Payment on a Home
When considering buying a home, the down payment you put upfront plays a major role in your future housing expenses. The amount you save can greatly influence your interest rate, monthly housing payment and your need for mortgage insurance.
Typically, lenders require anywhere between 5 and 20 percent of a home’s purchase value as down payment, but the more money you can put down, the better off you’ll be. Here are six tips to help you cut the extra costs and save for your down payment.
- Develop a budget & timeline. Start by determining how much you’ll need for a down payment. Create a budget and calculate how much you can realistically save each month. This will help you gauge when you’ll be ready to transition from renter to homeowner.
- Establish a separate savings account. Set up a separate savings account exclusively for your down payment and make your monthly contributions automatic. By keeping this money separate, you’ll be less likely to tap into it when you’re tight on cash.
- Shop around to reduce major monthly expenses. Check rates for your car insurance, renter’s insurance, health insurance, cable, internet or cell phone plan. There may be deals or promotions available that allow you to save hundreds of dollars by adjusting your contracts.
- Monitor your spending. With online banking, keeping an eye on your spending is easier than ever. Track where most of your discretionary income is going. Identify areas where you could cut back (e.g. nice meals out, vacations, etc.) and instead put that money into savings.
- Look into state and local home-buying programs. Many states, counties and local governments operate programs for first-time homebuyers. Some programs offer housing discounts, while others provide down payment loans or grants.
- Celebrate savings milestones. Saving enough for a down payment can be daunting. To avoid getting discouraged, break it up into smaller goals and reward yourself when you reach each one. If you need to save $30,000 total, consider treating yourself to a nice meal every $5,000 saved. This will help you stay motivated throughout the process.