Learning to save is one of the most important personal finance lessons a person can learn. But saving is still a difficult thing for many people regardless of age or income. In order to guarantee yourself financial stability for both the short and long term, it is important to put a set amount of money into your bank account and leave it there.
What Are Short and Long Term Savings Goals?
A short term goal where savings is concerned involves planning for the more immediate future. A common savings goal is an emergency fund. This fund is established so money in the account can be put towards true emergencies such as home repairs, auto repairs, sudden financial disasters, and other crisis situations that can spring up without much warning. Short terms savings goals are also anything that is to be achievable over the next few months to a year such as a family vacation or a vehicle purchase.
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Long term savings goals are about looking at the big picture financially. Long term savings goals should encompass things that will eventually occur down the road and probably have a higher price tag than some of the shorter term goals. This may include saving up for a new home down payment and retirement.
Why Bother Setting Goals?
As humans, we often need something to look forward to and with our busy lives we require time to plan things out. Those who are bad at saving may not have set actual goals or have set goals that were completely unreasonable to reach.
Setting goals helps you stay financially organized. You know you want to take that cruise or get the family to finally see Disney World but you may not realize what it takes to get what you want without pre-planning. By setting goals, you can break down the process of saving to make it easier and more convenient. By setting goals, you are giving yourself time to save. Many people are still very impulsive with their money and as a result, they rarely have the cash on hand needed for the things they truly want.
A key part of good personal finance practice involves the defining of wants and needs. You can set goals for both conditions but in order to truly know what you can afford and what you can’t it is good practice to set savings goals to first determine if you can achieve the things you want and still have the money to afford what you need.
How to Start Planning Your Savings Goals
All aspects of good personal financial management include planning and consistent effort. When you want to start setting savings goals, make sure you carve out enough time where you can concentrate on your finances. If you are married or have combined your finances with another person make sure they too are part of the discussion and decision process.
You don’t necessarily need fancy books and ledgers to get started. A simple pen and a notebook will suffice. There are several free worksheets online that you can print out as a guideline for setting your goals. But it is important to remember that goal setting is a personal process. What works for one person may not necessarily work for you. Start with a sheet of paper and invest in other supplies later if necessary.
To begin, start listing all of the things you want to accomplish, want to buy, and the other ways you’ll spend your money. Between you and your partner you should prioritize the various goals listed so you are working on the same page. Once you have compiled a prioritized list, notate which are short-term goals and which are long-term goals.
You may need to do some research on what your goals will cost. Using a vacation as an example, you may find that your family can visit Disney for roughly $4,000. You want to make that trip in 8 months so you will need to save $500 a month until the trip. This will put your wants and needs into a financial perspective. Do this estimation with all of your short-term goals.
When it comes to planning for your long-term goals, you may need to do much more research. You may also need the assistance of a financial planner when it comes to your long-term financial needs including college tuition for the kids, investing, and your retirement. For a more do-it-yourself approach, you can try personal financial management (PFM) tools.
Put Forth the Effort
Another issue many people have when it comes to planning their savings goals is they are gung-ho about the initial process, but their efforts fizzle out after the first few tries. The only way to keep your goals on track is to be consistent with them. Post your goal list in a place that is discreet but that will allow you to see it often. When you achieve a goal on the list, cross it off with a pen and put in a new goal. The more attention you pay to your savings goals and planning the more rewarded you will be when your goals all become achievable.
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