By Kevin Gibbons
When you are already saving for retirement and your children’s education, how do you save for that dream vacation?
One of the main tenets of smart saving is “pay yourself first.” Most savvy people already practice this on a basic level, by setting up automatic transfers from a checking account or income stream to a retirement or investment account. But what about saving for other short- and long-term expenditures? The same approach can work. When we prepare spending plans for clients, we ask them about all their goals, both long- and short-term. We help them identify the time frame and money needed. Then we work with them to prioritize those goals, setting up realistic savings and spending plans to meet those objectives.
Of course, this does not mean ignoring financial obligations, or becoming delinquent on outstanding debts. Instead, it is an approach that puts your financial goals first and then looks at how to meet your obligations and balance the books; rather than simply paying the bills and then seeing what is left over for the future. This can be an amazingly effective approach to improving your financial health. If sacrifices or reductions in spending have to be made, now there is a positive incentive at the end rather than the (important, but hardly inspiring) simple goal of getting out of debt or putting money toward retirement, that you may feel too far away to be passionate about.
What’s more, after you have successfully saved for your first goal, it is easy to be encouraged to move on to the next priority on your list. Think of it as “lining up a pool shot,” so that after one goal is met, you can immediately focus on the next goal. This strategy helps encourage the good habit of targeted saving, with the short-term positive feedback so essential in building and maintaining these habits.
We helped two of our clients realize their goal of going on a cruise that they had been trying to save for over two years. With money going to their 401(k), they felt as if there wasn’t enough left over for their vacation goal. When we first started working with them, they did not even know how much the cruise would actually cost. They just knew that they never had “enough” money to take it. After asking them to do the research for how much it would cost, we worked with them to craft a spending and savings plan. Together, we formulated a simple strategy by them taking their lunch 2-3 times per week and having that “saved” money automatically transferred to a dedicated savings account. We determined they could save the needed money in about 5 months. But the best part of this story is that, once they saw that savings grow, they were encouraged to look for other ways to save. They were able to take that cruise after just 3 months of targeted savings.
Whether it is saving for a college education fund in ten years, a European vacation next year, or even a birthday present in six months, identifying and saving for those items up front is the key to realizing them when you plan to, rather than “someday.”
For Five Simple Strategies to Help You Meet Your Goals with Targeted Savings, send an e-mail to Kevin@TheSavvyLife.com.
Kevin Gibbons is Chief Operations Officer for The Savvy Life, a financial education company focused on helping people manage their everyday money while working towards their larger financial goals. Prior to The Savvy Life, Kevin was a Technical Program Manager in the Aerospace and Defense Industry.