If you had to choose between sitting down at the kitchen table and setting goals or sitting on the beach in the Caribbean, you would probably choose the beach. But how would you pay for the airfare? Hotel? Food? Souvenirs?
Goal setting in and of itself may not be exciting and fun, but it helps you to save for and achieve exciting and fun things, as well as things that may not be as exhilarating but are still pretty important (such as having enough money for retirement or a child’s college education). You could just wait and see what is left over at the end of the month after you pay your bills, but since it is easy to get in the habit of spending what you make, you may wind up having no savings if you take this approach.
The first step in achieving your financial goals is, not surprisingly, determining what your goals are. For right now, just think about the goals themselves and when you want to achieve them by – don’t worry about the cost. Do you want to buy a new computer in a year? Have a down payment for a house in four years? Be debt free in five years?
Short-term goals are achieved in under a year. To determine the amount you will need to save for a good or service, look at what the cost is now – it is unlikely that the price will be that much different seven or eight months down the road. Once you know the total amount you need, determining the amount you need to save each month is easy – just subtract any amount you have already saved from the total cost and divide by the months until the desired achievement date.
Mid-term goals are achieved within one to five years. To determine the total cost and amount you need to save per month, you can use the method just described for short-term goals or use the method that is described in detail in the long-term goals section. This method takes into consideration the fact that the cost of most things rises over time due to inflation and that your savings will grow beyond your contributions if you earn a return on your investments. The math for the first method is much easier, but the second gives you more accurate numbers. You don’t necessarily need to go the extra mile to consider inflation and return for goals of smaller amounts that you plan on achieving in a year or two, but you may want to do it for high-cost goals with a longer timeframe.
Long-term goals are achieved in more than five years. When you are figuring out the total amount you need to save for a long-term goal, it is important to consider the effect of inflation, which, as mentioned previously, is the general increase in the price of goods and services over time. Ever hear someone lament about how a loaf of bread, gallon of gas, movie theater ticket, etc., only cost a quarter back in the day? Well, inflation is one of the reasons those things cost multiple quarters now. Once you know the total amount you need to save, you can figure out how much you should set aside each month and it is a good idea to factor in the return that you expect to earn on your investments. Once you have a realistic goal plan, you need to determine where your savings will go.
Be Flexible in Saving
Your savings should be the first “bill” you pay each month. But what if you simply can’t put the $150 into your Maui extravaganza fund one month because your transmission blew? Resist the urge to panic, and consider it a temporary setback. With a little extra effort, you may be able to make it up over the next couple of months. Or you may be able to alter your plans or achievement date slightly. However, if you find yourself regularly unable to meet your savings goal, there may be deeper issues to contend with. Were you too optimistic with those overtime hours? Couldn’t give up smoking to save the extra $100 per month? Or perhaps the goal really wasn’t for you – you thought a new computer was vital to your happiness, but the prospect of owning it just isn’t giving you the thrill you anticipated. Revisit your goals and budget and make adjustments so that they are more achievable.
You’ve worked hard and now it’s time to play. If you’ve dealt with your money smartly, your biggest concern during your golden years might be how to manage all of it. Now, you’ll need to understand:
- How to live on your retirement savings
- Tax considerations
- Estate planning
Of course, these stages aren’t one-size-fits-all. There are certainly retired folks who still need information about managing a budget just as young adults should be thinking about estate planning. The recurring theme throughout all stages, though, is that the more you understand about your money, the better equipped you are to move on to the next stage with as few bumps along the road as possible.
eBranch Savings Goals Tool
One simple way to start setting goals is by using the Savings Goal feature in ICCU’s online banking system, eBranch. This tool helps you create, track, and manage your personal financial goals. You can set up multiple goals per account and allocate funds to these goals in different ways. If you set a goal to save for a down payment on a new car, you can track the progress of your savings. You can also reallocate funds any time your goals or priorities change. Creating goals and tracking your progress is easy with the Savings Goal feature found in the Financial Wellness Widget on eBranch, from Idaho Central Credit Union.