How do you set a clear savings goal? Isn't it just like a weight loss goal? You want to lose 50 pounds in 6 months. Goal set! You want to save $500 in 6 months. Done! Right? Maybe...
When setting savings goals, it helps to know what you want the money for. If you merely decide to save $500 in the next 6 months, and then in month 7 you see a great sale on TV's and purchase it, have you accomplished your goal? Theoretically. But now you're right back where you started...unless buying a new TV was your ultimate goal.
Ready to set some SMART savings goals? Here are some tips to help
1. Determine what you are saving for. This will depend on how prepared you are already. Do you have an emergency fund already established? Do you have money saved for retirement? If not, I recommend you start with these. First, 6 months of living expenses as an emergency fund. Then start putting some money aside to invest for your future.
2. Assess your situation. Unlike weight loss or many other goals, savings goals are often dependent on outside factors. If you decide to lose 50 pounds in 6 months, you can most likely achieve that goal if you are willing to do what it takes. But if you decide to save $500 in 6 months while every dollar of your paycheck is being used just to meet basic expenses, that may not be a realistic goal.
This is where you need to take a good look at your spending habits. First, determine your monthly income and include EVERYTHING! Salary, alimony or child support if you receive it, income from a side hustle if it's reliable. You aren't sharing this with the IRS so every penny of income must be included, even if it's "off the books."
Now do the same thing with your expenses. Where does your money go each month? Rent or mortgage payments, food, clothing, car payment, gas, utilities...everything gets included. If you have trouble remembering, check your bank statement. That will give you a pretty good idea of what you spend your money on.
Once you know exactly how much you bring in each month and how much you spend, subtract cash out from cash in. Is there anything left? That's how much you have to play with.
3. Based on the results from step 2, you have choices. If what you have left over each month is enough to enable you to reach your goal, then good. You're done. Decide where you are going to keep your savings until you need it. Emergency funds should be handled differently than retirement savings for example.
If you don't have enough left over, you still have a choice. You can either modify your savings goal or change your spending habits. Personally, I recommend changing your spending. In order to meet my savings goal, I stopped my cable subscription, my daily Starbucks run, the monthly manicure and other non-necessities. You can do the same. Examine your monthly expenditures for things that are not necessities. Wants rather than needs. Can you give some of them up to meet your goals? It turns out I can get Netflix free with my phone plan. That and a $20 HD antenna and I have all the television I need. Saving Starbucks for an occasional treat has not only helped my put more money in my bank account, it has also helped my take off a few extra pounds. And I have discovered doing my own nails as part of my weekend 'me' time is actually very relaxing.
Did you find a few more dollars to add to your savings goal?
4. Track your savings. Check on your progress from time-to-time to make sure you are on track to meet your goal. And don't stress if you slip up one month. Pick yourself up and get back at it the next month.
5. Reward yourself as you reach milestones along the way. This can help you stay motivated and on track to meeting your new savings goal!
