One of the first steps in taking control of your finances is to create a budget. This budget can help you become more aware of your expenses – thus helping you discover saving opportunities.
What Should You Save For?
A budget can highlight your financial habits and show you where you might be spending unnecessarily. By seeing your expenses and income laid out in front of you, you can then close any gaps in your habits and start saving for the things you truly want and value.
In many cases, people automatically begin saving for things like a six-month emergency fund, paying off student loans, or planning for retirement. While those things are important and beneficial, it will take a long time to reap the rewards.
With that in mind, you might consider including some short-term saving goals that you can enjoy sooner. For example, a tasting at the local winery, buying a new phone, or purchasing equipment for a hobby you enjoy. Immediate rewards can help you see the bright side of budgeting and may even motivate you to keep going.
Note: It’s important not to overlook those larger saving goals you’ve planned for. Instead, include smaller goals that matter to you and that you feel passionate about in your daily life.
How to Set Saving Goals – Whether Big or Small
Knowing how to set saving goals is a key part of achieving those goals someday. Here’s a step-by-step plan for setting saving goals of any size.
Assess Your Financial Situation
Before you start setting any saving goal, you’ll need to assess your current financial situation. Without knowing how much you can save, you won’t be able to set realistic goals. So grab a piece of paper and a pen (or open a spreadsheet) and determine the following:
- Your total monthly income: How much money do you take home each month after taxes?
- Your recurring monthly expenses: How much do you spend on necessities like rent, utilities, groceries, and fuel?
- Other expenses: What do you spend money on each month? Look at your spending habits over time to see what you are purchasing (such as snacks from the gas station, lunches out, or movie tickets, etc.).
Once you’ve gathered your data, subtract all your monthly expenses from your total monthly income. If your income exceeds your expenses, you’ll have leftover money to save or spend. If your expenses exceed what you bring in monthly, you’ll need to cut back on some things.
Note: When evaluating your budget, divide your expenses into two categories: wants and needs. This way, you can look at your discretionary spending and cut out things that you no longer use much, like subscription services.
After this assessment, you should have a clear idea of how much money you can save each month and the monthly budget you need to follow to achieve saving.
Set Goals
Once you’ve assessed your financial situation, it’s time to clearly define what you want to achieve. The SMART goal framework is a helpful guide to follow. It requires your goal (or goals) to be Specific, Measurable, Achievable, Realistic, and Time-bound.
For example, let’s say you want to graduate college with as little student debt as possible. This goal may seem somewhat vague since you don’t have a timeline or specific amount. To make this a SMART goal, you could instead say: “I want to graduate college with less than $10,000 in student debt.”
By clearly defining the goal, you’ll know exactly how much you need to save each month to achieve it. Thus, the goal becomes more realistic, and you can hold yourself accountable. So, set your goal and make sure it follows the SMART goal framework to stay on track.
When
It’s about fun things; you can also use the SMART goal framework to set your goals. For example, if you regularly prioritize mental and physical health, consider setting a monthly goal that aligns with this passion, like saving $50 a month for a new exercise class that will bring you happiness.
Using a Savings App
Once you have set SMART goals and have a realistic idea of the amount you can save, it’s time to start moving forward. There are several ways you can use to make the saving process easier, and one of those ways is by using an app to track expenses.
For example, Mint allows you to track where all your money goes by adding cash, credit cards, bills, and investments. Then, you can set custom savings goals and track your progress with helpful visualizations.
Creating a Separate Savings Account
Another way you can help yourself stay on track is by opening a separate savings account specifically for your goal. By doing this, it becomes easier to see how much you’ve saved and to resist the temptation to withdraw money from that account. This is usually better for long-term goals; the longer you need to achieve the goal, the more you can accumulate in the account.
Automating Savings
Once you’ve decided on a plan, you can automate savings so you don’t have to think about your money. Many financial institutions allow you to set up automatic transfers from your checking account to your savings account in the amounts you desire. This way, you’ll stay on track, and you can set aside savings before you are tempted to spend it elsewhere.
Tracking Your Progress
Like any other goal, it’s important to stay informed about your progress. Check at the end of each month to see if you’re on track. If the goal is small, you might even want to check every week.
Note: Budgeting or savings apps can make tracking goals easier. You might also consider creating a visual representation in your home that you can see every day. This can be helpful if the goal is shared with family members, as you can celebrate progress together.
Frequently Asked Questions
What does it mean to set SMART savings goals?
The acronym SMART is a framework for setting goals that helps increase the chances of achieving them. “Specific” means the goals are clear, “Measurable” means they are quantifiable, “Achievable” means they are attainable, “Realistic” means they are reasonable, and “Timely” means they are time-bound.
How can I set a savings goal?
Setting a savings goal starts with evaluating your financial situation to see how much you can save. Once you know, you can start prioritizing what you want to save for, how much you need to save, and the timeframe in which you want to achieve it. The SMART framework can help you set realistic goals that you can track until you achieve them.
What is a reasonable savings goal?
A reasonable savings goal depends on your financial situation. You will need to analyze your income and expenses to determine the amount of income available for saving. People’s goals will vary based on how much income they earn and their overall cost of living.
Source: https://www.thebalancemoney.com/set-savings-goals-even-for-fun-stuff-5210988
Leave a Reply