A savings goal is simply an event or product you’re setting aside money in a savings account for. Typically, these are big-ticket items that may take several months, or even years, to save for.
Sometimes simply by having a goal and a specific amount in mind, you’ll be more motivated to save money.
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Types of Savings Goals
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You can have both short-term and long-term savings goals. The difference really depends on how much you can afford to set aside each month and how much you need in total to achieve your goal.
Let’s look at a few examples.
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Short-Term Savings Goals
Your short-term savings goal should be achieved within a few months or up to a year. Maybe you want to save $500 for a plane ticket to see your family. Or you’re looking at paying off a personal loan with a balance of $1,200.
These might be reasonably achieved in under a year, if you commit to setting aside a certain amount of money each month for your savings goal.
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Long-Term Savings Goals
Longer-term savings goals might take two or three years… or up to 30 (or more). These include things like saving to buy a car without having to get a car loan or paying off a student loan. You might set a savings goal to come up with a down payment for a home or save for a home remodel.
One of the best long-term goals is saving for retirement.
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Setting Savings Goals
In reality, you will likely have both short- and long-term savings goals. It’s important that you commit to each one rather than replace one with another. For example, if you’re saving for a vacation, don’t stop contributing to your retirement savings!
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Budgeting Your Money
To set a savings goal, start by calculating how much money you need for your goal. If you want to move to Italy, research what it will cost to fly there, ship your boxes, and find a house. Pad a little extra for unexpected expenses.
If you want to buy a car with cash, see what the current price for the vehicle you’re interested in will cost. Don’t forget to factor in fees for registration and taxes.
This step will require some research. Look for flight prices online. Go to a dealership to look at prices. Talk to people who have gone down this path.
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Having a Realistic Savings Target
Now that you know how much you need to hit your saving goals, determine how much you can afford to put into savings each month. You need to be able to cover all your normal monthly expenses before you can save anything.
You can automate your savings by setting up an automatic deposit into your savings account from your paycheck or from your checking account each month. Once that money is out of sight, you won’t be tempted to spend it!
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Setting Your Savings Goal Timeline
The next step in achieving your money saving goals is creating the timeline. Now that you know how much money you need and how much you can afford to save each month, you can calculate how long it will take you to reach your goal.
To calculate your timeline, simply divide the total amount you need by your monthly savings contribution.
Let’s say you want to save $5,000 to buy a car. You can contribute $200 per month. That means that in 25 months, or just over two years, you will have reached your goal.
Want to reach your goal faster? Consider what monthly expenses you could cut out. Maybe you could reduce the amount you spend on dining out with friends, or cut back on costly cappuccinos. When you reach your savings goal faster, you won’t even miss those meals or coffees!
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Common Places to Put Your Savings
You know how much you’re saving and how long it’ll take to reach your goal…but where are you putting your money?
It’s better to open a separate savings account rather than leaving your savings in a checking account, for a few reasons. First, if the money is in an account with the rest of your money, it’ll be easier to spend. Second, a savings account earns interest, so everything you put into it accumulates interest. Even your interest accumulates interest!
Consider opening a separate account for each savings goal you have so your money isn’t mixed together.
If you don’t need to access the funds for a year or more, you can invest in a treasury bond or a CD, which usually stipulate that your funds have to stay in for a specified period like a year before you can withdraw them with interest.
If you have a short-term savings goal, look at a high-yield savings account. These usually pay higher interest than traditional accounts.There are also money market accounts that act as a hybrid between a checking and savings account. You can write checks and use a debit card, but your account also earns savings.
If you’re saving for a child’s college education, consider opening a 529 savings account, which has tax benefits. And if you’re saving for retirement, look at a 401(k) with your company or an IRA. These are savings accounts with tax benefits as well, though you’ll be penalized if you take your money out before retirement.
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The Takeaway
Setting savings goals can help you focus on what you want to save for and make it faster to get what you want. Once you have a budget and a timeline, all you need is a savings account.
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