As I mentioned in the previous post in this series, “How’s Your Spending?“, the mid-point in the year is a good time to revisit your financial situation and see where you stand. To help get you started, I’ve put together a series of ideas to help you conduct your own mid-year financial check-up. Second in the series is a review of your savings.
Review Your Savings Balances
First, analyze current savings levels. Visit all your savings accounts online and create a master list of all your savings. This can be done in Excel or Quicken, or a simple piece of paper. For now you can ignore retirement savings and investments as we’ll cover those in part 4. Just focus on your short-term savings accounts. If you have no short-term savings, pay close attention to this next step.
Decide What Type and How Much Savings You Need
Next up, you should spend some time deciding what type of savings you need. If you already have dedicated savings, think about the changes that have taken place in your life, or changes that will take place soon. Then, adjust your list accordingly. If you have no dedicated savings, or if you’re just looking for different reasons to save, here are some ideas to get you started:
- Emergency Fund – The financial experts recommend that 3 to 6 months of your normal expenses be set aside in case you encounter an unexpected event, like a job loss or major car repair. This is typically called an emergency fund.
- Down Payment – This could be for any type of big purchase: car, house, etc. Basically anything that requires financing. If you’re going to buy something big soon, consider saving for the down payment.
- Vacation/Travel – Want to go on another trip this fall or winter? Start saving now.
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Fall and Holiday Expenses - Start thinking about the remainder of the year and all the big expenses you’ll have. Two of the bigger one’s for most are late-summer/fall school supplies and clothes, and holiday expenses. If you set aside $3 a day starting today, you’ll have roughly $500 by the time Christmas rolls around.
- Medical Expenses- Some people use their emergency fund for this, but if you’re having a baby or planning on lasik eye surgery, you’ve got time to save up for the deductible.
- Property Taxes – Consider doing your own property tax escrow and paying your own property taxes at the end of the year.
Once you have your list of savings goals, put a dollar amount to each one and divide that total number by the number of months you have left. Then, begin saving that amount each month.
Simple Example
Savings Goal #1 (Down Payment)
Total Balance Needed ($5,000)
less Current Savings ($1,000)
divided by No. of Months (6 Mo.)
= $667 (Save This Each Month)
Bonus: Make It Automatic and Set Up Multiple Savings Accounts
Now that you know your current savings balances, your goals, and how much you’ll need to contribute, take the next step and make it automatic. Automating your savings takes a bit of initial effort, but once your set up, you’re good to go. Nothing to worry about but how to spend your leftover money.
Since you have multiple savings goals, consider setting up multiple savings accounts: one for each goal. Some banks may not let you do this (having more than one savings account), but I know some will. I use multiple ING DIRECT’s Savings Accounts.
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Have anymore advice on ensuring your savings is adequate? Share it in the comments below.
Later on this month, I’ll be sharing the result of my own check-up, which will include a review of my saving and debt-reduction goals. To ensure you don’t miss an upcoming article, subscribe to Prime Time Money today.
Photo: by ridge
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