You have dreams. From taking a fabulous vacation to buying a home, from paying off your own student loans to saving for your child’s college years, to building a retirement nest egg and more. But you only have so much money to spare every month. So how do you afford it all? By prioritizing your goals and your savings plan. These five steps can help you get started.
Step 1: Identify specific goals
Start by writing down all the goals you want to save for. Most financial experts agree you should include these three at the top of your list:
- Get out of debt. If you can only make minimum payments on balances you have on high-interest credit cards or loans, you could wind up paying hundreds to thousands of dollars in interest charges over time. So, paying them off makes good financial sense.
- Create an emergency fund. This helps ensure you don’t go into debt or drain your savings if you lose your job or face a major, unexpected expense. It’s okay to start with $500 to $1,000, but ultimately you should stash enough to cover three to six months of expenses.
- Save for retirement. No one else is likely to support you once you stop working, so you need a nice, fat nest egg. Starting as soon as possible gives you more time to take advantage of compound interest — where you earn interest on the money you put in plus the interest you previously earned.
As you write down your goals, include an estimate of how much money you’ll need for each one and when you’ll need those funds.
Step 2: Separate “wants” and “needs”
Now split your list into things you want and things you need. Some will be obvious — a vacation is a want, while an emergency fund is a need. But others will depend on your personal situation. For instance, if you need a car to get to work, then having a critical repair done may be a need. Try to strike a balance between the two goal types. Otherwise, it’s easy to get discouraged and veer off your savings track.
Step 3: Rate and rank your goals
Next, rank each goal based on how important it is to you and to your overall financial health. For instance, paying down high-interest debt helps your financial picture and should rank high. But when comparing wants, think about what matters most to you personally.
Ranking can help you zero in on your top three to five goals — or even convince you to focus on just one very important goal for now.
Step 4: Determine timelines
Considering timelines for accomplishing each goal can also help you prioritize. For instance, a short-term need (like that car repair) should likely get more focus than a long-term want (like buying a new car in three years). Bonus: Once you check off a short-term goal, you can reallocate those funds to other goals!
Step 5: Know what you can spend
Of course, you also need to know how much money you have available for reaching your goals. Start by writing down your monthly income and subtracting your essential and non-essential expenses. What’s left is the amount you can easily put toward your savings goals every month.
The way you’ve prioritized those goals, plus the timelines you’ve set, will help you decide how much money goes to each one. If you don’t have enough for all your goals, consider whether you can extend timelines or reduce the amounts you’re shooting for. You can also review your non-essential expenses to see where you could cut back to free up funds.
Tip: Put your savings to work
Putting your money into an interest-earning savings account lets you gain “free” money while you save. As your savings grow, consider moving some or all of it to a money market account. They generally have more restrictions and a higher minimum deposit amount, but a higher interest rate.
Once you choose an account, consider setting up direct deposits to it from your paycheck. Automating your savings is a great way to help ensure you’re not tempted to use that money for something else.
If you want help exploring or opening any type of savings account, your team at Hancock Whitney can help. Talk to a banker today.
“How should I prioritize my savings goals?” Miriam Caldwell, TheBalance.com, updated March 13, 2020, https://www.thebalance.com/how-should-i-prioritize-my-savings-goals-2386146, accessed May 5, 2021
“How to Handle Multiple Savings Goals,” Kathryn Vasel, CNN Money, posted April 16, 2018, https://money.cnn.com/2018/04/16/pf/how-to-save/index.html, accessed May 5, 2021
“How to Prioritize and Save for Multiple Goals,” Christopher Murray, MoneyUnder30.com, posted Sept. 15, 2019, https://www.moneyunder30.com/save-for-multiple-goals, accessed May 5, 2021
“What savings goals should you focus on first?” Vicki Cook and Amy Blacklock, Women Who Money, https://womenwhomoney.com/savings-goals-focus-priority/, accessed May 5, 2021
Hancock Whitney Bank does not provide tax, legal or accounting advice. You should consult your own tax, legal or accounting advisors. This material is for informational purposes only.