How to Achieve Your Savings Goals

Whether you are planning for a vacation, saving for a new car, saving for the down payment on a home, or saving for your Christmas shopping, the steps to reach your goal remain the same. Here is what you need to do:

1. Assign a dollar value to your savings goal.
2. Determine how long you have to reach your savings goal.
3. Designate a specific savings account that is intended only for the goal you established (e.g. a car account). A high-yield savings account is the best option.
4. Determine how much to contribute each month.
5. Automate your savings. Allocate a specific amount that is automatically transferred at regular intervals. This should align with when you are paid.
6. Periodically assess your progress to ensure you are on track to meet your goal.

How much do I need to save?

The first step to reaching your savings goal is to assign a dollar value. For example, if you are saving for a down payment on a home, start by determining your price range. If you are looking at homes valued between $250,000 to $300,000, then you will take 20% of the highest value (in this case $300,000), which equates to $60,000; this is your savings goal. The reason you plan for 20% is because this is the standard down payment required to avoid private mortgage insurance and receive an optimal interest rate from your mortgage lender. A home is likely the largest purchase most of us will ever make, but the same process applies to saving for Christmas gifts. If you want to buy gifts for 10 friends and family members, you will need to determine the price range of the gifts. If you plan to spend between $30 to $50 per individual, then you will need to save $500 (10 people at $50 each).

How long do I have to reach my goal?

After you determine how much you need to save, the next step is to determine how long you have to save it. Continuing the Christmas gifts example, if you start saving in May, then you will have six months to save and still allow some time to complete your shopping before the holiday. You will have met your savings goal by November, giving you approximately a month to complete your shopping. Now that you know how long you have to reach your $500 goal, the next step is to determine how much you must save each month. In this case, $500 over six months is equal to $83.33 per month. If you get paid bi-weekly, then break this amount down by paycheck. In this case, you need to save $41.67 each paycheck.

Where should I keep my savings?

While reaching your savings goal may seem simple enough, designating a specific account to keep the money is vital. If you allow the money saved to stay in a shared account, such as your checking account, then you may be tempted to use this money for other purposes. Additionally, you may spend it unknowingly, if you do not meticulously track spending. Therefore, the best approach is to create a high-yield savings account allocated solely to your goal. Check out our "High-Yield Savings Account" article to learn how you can reach your savings goal faster by earning a much higher interest rate than banks offer for traditional savings accounts.

How do reach my savings goal?

When working towards a savings goal, it is easy to get distracted and forget to transfer money one month. After all, we all have multiple priorities that compete for our time. However, if you want to reach your savings goal, consistency is the key, and the best way to be consistent is to automate your savings. To do so, simply log into the account where your pay checks are deposited and setup recurring automatic transfers to your high-yield savings account. These transfers should be established to align with when your paycheck is deposited.

Periodically Assess Your Progress

If you followed all the steps outlined, then you are well on your way to reaching your savings goal, but you still need to evaluate the progress periodically. If you have six months to reach your goal, then it is worth evaluating your progress every two months. By the two-month mark, you should have saved one-third (33%) of the money. For the Christmas shopping example, in July, you need to have saved 33% of $500 or $165. If the value saved is less than $165, then you will need to reevaluate and the amount that you are missing will then need to be allocated to the remaining months. For example, if you only saved $125, the remaining $40 will need to be allocated to the last four months, increasing the amount that needs to be saved by $10 per month. However, if you automate your savings, there is no reason to fall behind.

Conclusion

How do I save for a vacation, a house, a car, school, childcare, or a major purchase? While the dollar amount needed for each of these goals varies substantially, the process to achieve it does not. Determine how much you need to save and how long you have to save it. Create a high-yield savings account designated solely for the goal you have set and automate your savings by setting up recurring transfers from your checking account. Once this is done, evaluate your progress to determine if you are meeting the milestones established.