While saving money comes naturally to some, others may find it extremely difficult to instill it in them. I am no stranger to setting financial goals as I have often aspired to make saving money a habit. Unfortunately, the goal-setting journey isn't a smooth one for impulsive buyers like myself. Faced with bumps along the way, I did, however, manage to pick up a thing or two about setting effective financial goals.
For effective financial goals, begin by listing the things you want to get done in the next 20 years. They can be goals which you want to have achieved by next year, five years later or in 20 years’ time. Do you wish to upgrade to a new home by the coast? Is there a credit card debt you need to eliminate? Consider the importance of these goals. Then, go on to estimate the amount you will have to save each month in order to have enough money by then. This amount will be the goal you will be working towards and saving for.
Below are my Do’s and Don’ts of saving money to accomplish financial goals.
- Know how much you can save. Before jumping into anything, be aware of how much you earn and consequently, can save. Only then should you be setting your goals. With a proper understanding of your financial capabilities, the chances of your goals being realized are much higher.
- Clear your debt first. The interest you will be charged with on your credit card will higher than what you earn from your savings. So, be smart. Give priority to debts.
- Make saving become second nature and start immediately. By being consistent with your efforts, you will not deviate from the set time frame of your financial goals. Furthermore, compound interest means the earlier you start saving, the higher the interest it will produce. If you’re planning to save up for a car or a new home, you need to head to the bank today.
- Create a budget. To keep track of how you spend your money and learn to use it more wisely the next time, record all expenditures you incur. Based on that, create a budget for the next month(week, etc). Be careful not to leave out the Savings category! Moreover, with so many budgeting apps available at our convenience, there are no reasons not to do it.
- Be prepared for emergencies. Life is unpredictable. Your car may unexpectedly need repairing or, there may be an accident at home. Have money set aside for a rainy day.
- Don’t spend more than you earn. Seems fairly basic and self-explanatory, but is noteworthy all the same. If a situation arises where you feel like making an impulse purchase, ask yourself this: Do I really need it in my life? If it's a yes, give yourself more time to consider. Most of the time, these purchases will not be worth blowing your budget over. But, we won’t know that at that time, will we?
- Don’t keep your stash at home. Unless they are for emergencies, don’t leave your money when they can be in the bank earning interest. This goes for leaving excess cash in the checking account too. Transfer it to your savings account to take advantage of the higher interest rate.
- Don’t procrastinate when saving. In this case, time really is money. If you are a chronic procrastinator like me, you probably planned to save three months ago and still have not created a savings account. Head to the bank straight away. Don’t even plan for it – you and I know very well how that ends.
- Don’t put saving at the bottom of your list. You should arrange for a set amount of your pay to be transferred from your normal account to your savings account each month. This way, you can prevent external factors from affecting your savings progress.
- Don’t touch your savings. There’s a reason why you started saving up. Keep that reason with you always. For example, if you’re saving for a new car, have a photo of it pasted somewhere. Sometimes, you will need reminders of your long-term goals to get past instant gratification.
Sometimes, the habit of saving can prevent us from enjoying our earnings as much as we deserve to. Assure yourself that you’ve been responsible with your finances. You have saved enough of what you rightfully earned. When you convince yourself of this, you will feel free to enjoy the money you have now.
That said, the habit isn’t one that can be developed instantly. With enough commitment to your financial goals, however, you can be on your way to securing a future that includes the accomplished ultimate goal.