A Complete Guide to Savings Goals

One of the best financial goals you can have is to save more. 

The more you save, the more security and opportunities you can create for yourself.

If invested properly, your savings can also lead to the creation of income-producing assets, setting you and your family up for a lifetime of financial success.

The guide below will break down the how, where, and why of savings, providing you with some personal savings goals and advice for reaching them.

How to Reach Your Saving Goals

Here are some pointers to help you establish and meet your savings goals.

Decide What to Save for

There are some common goals that everyone should have, like building an emergency fund and saving for retirement, but the rest depend on you and your family’s values.

Factor in your long and short-term goals for the future to decide what’s worth saving for.

Here are some common expenses you might want to factor in:

  • Retirement: Do you want to be comfortable and self-sufficient after you retire?
  • Emergency fund: Do you want to be able to handle the unexpected without going into debt?
  • Major purchases:  Do you plan to purchase something significant, like a house, car, or boat?
  • Tuition: Do you need to pay for your or your kid’s college education?
  • Paying off debt: Do you want to reach financial independence?
  • Starting a business: Do you want to start a fund that will allow you to leave your job and become self-employed full-time?
  • Traveling: Do you have a short-term goal, like saving for a vacation?
  • Home improvement: Do you want to give your house a little TLC?
  • Wedding: Do you plan to walk down the aisle soon or pay for your child’s wedding?

These are all great things to save for, but you ultimately need to prioritize what matters most to you.

If you’re married, set goals with your spouse to ensure your goals are aligned. Come up with a list independent of your spouse, then come together to create a joint list you’re both happy with.

Related: New Personal Finance App for Couples: Our Zeta Review

Set a Monthly Savings Goal

A lot of financial experts recommend you use the 50/30/20 rule when it comes to saving.

While your savings amount might look different based on your age, goals, and income, it’s a great starting point.

Here’s how the 50/30/20 rule breaks down:

  • 50: Half of your income is designated for essential expenses like your rent/mortgage, utilities, car payments, etc.
  • 30: 30% of your income can go towards discretionary spending, like eating out and shopping for non-essentials.
  • 20: At least 20% of your income should be put into savings.

If saving 20% of your earnings isn’t possible right now, it’s okay to start with a smaller goal, like 5%. Something is better than nothing!

On the other hand, if your financial situation allows you to save more than 20% of your income, go for it. You can reach your goals that much faster.

Establish a Retirement Savings Goal

Retirement is one of the biggest savings goals you’ll need to factor in. Some financial planners suggest you put 10-15% of your income towards your retirement.

Others recommend you multiply your overall income and set your monthly retirement savings goals accordingly.

The 80% rule is a popular strategy. It encourages you to save enough to replace 80% of your pre-retirement income, making adjustments based on your situation.

Just note that there may be annual contribution limits on individual retirement accounts like your 401(k), so you’ll want to know your limits before setting your goals.

Balance Your Savings and Debt Repayment

The models above are great as a general guide to saving, but what should you do if you’re one of the millions of Americans carrying debt?

If you’re tempted to skip out on saving money and channel all your efforts into paying off your debt, you may want to pump the brakes.

While it isn’t wise to put 20% of your paycheck away while interest piles up on your loans, you still need to save some money for emergencies.

Dave Ramsey suggests you build a $1,000 emergency savings fund before you tackle any debts. 

From there, he recommends you put everything into paying off your debts until all that’s left is your mortgage. If you’re looking for a concrete strategy to follow, this rule is a good one.

But if you work at a company that matches their employees’ retirement contributions, you could put in just enough to get the match, even if you have some debt.

Otherwise, it’s important to prioritize paying off toxic consumer debt like high-interest credit cards, title loans, and payday loans, ASAP.

If you’ve tackled your high-interest debts and are only carrying debts like student loans, a car loan, or your mortgage, you can take a more balanced approach with more savings, as long as your repayment plans stay on track.

For instance, you might beef up your emergency fund and contribute the maximum to your retirement accounts.

Related: 17 Winning Tips & Tricks To Legally Eliminate Credit Card Debt (For Good!)

Track Your Finances

Once you’ve mapped out your savings goals and considered your debt, it’s time to take a hard look at your finances.

To put the 50/30/20 rule (or whatever goal amount you choose) into practice, you need to list out your own income, expenses, and savings plans.

Start by calculating your total monthly income, including your paycheck and any other benefits you receive on a regular basis.

Then take a look at your transaction history to pinpoint your expenses and spending habits.

That should give you an idea of how much room you have for savings in your current budget, and show you where there’s room for improvement.

Draw a line between your wants and your needs, and try cutting down the amount you’re spending on wants if you’re looking to save more aggressively.

You can use a pen and paper, a spreadsheet, or a budgeting app to track your expenses and build your savings plan, which should include a timeline for getting there.

Pick a Place for Your Savings Account

There are a lot of places you can store your savings, and the best spot depends on what you’re saving for.

For short-term savings, like your emergency account or a vacation fund, you should look for a vehicle that offers liquidity and growth with as little risk as possible.

If you’re investing for something further in the future, like retirement or your child’s college education, go for an account designed for long-term growth.

  • High yield savings: While they may not be at their highest historically, online savings accounts typically offer better rates than traditional ones, and they’re easy to access at any time.
  • MMA/CMA: Money market and cash market accounts come with some checking account features, with comparable interest rates to high yield savings accounts.
  • CD: For goals with a clear end date, like buying a house in 3 years, you might consider a certificate of deposit, which usually grows at a fixed interest rate for a set term of time but is less accessible.
  • 529 plan: 529 plans are state-sponsored savings accounts with compounding interest that allow you to save for your child’s college fund, with tax-free growth and withdrawals.
  • Investment account: For a long-term goal like retirement, you should open an investing account like a 401(k) or an IRA. Investment accounts offer the highest returns over long periods of time.

Stay on Track

To reach your savings goals, you need to follow up regularly and stay motivated.

Here are a few pointers to keep you on track:

  1. Separate your savings. Combining all of your savings can get complicated. Instead, consider separate accounts, or open an account that allows you to designate deposits for different savings goals.
  2. Automate your savings. Whether you’re enrolling in automatic transfers to a retirement account or using a round-up app like Stash or Acorns, automating makes it easier to save.
  3. Set doable goals. Big savings goals can look daunting. Breaking them down into monthly or even weekly goals makes them seem far more achievable.
  4. Track your progress regularly. Stay on top of your savings, checking in often. Seeing your savings stack up can be super motivating and might encourage you to push even harder.

Our Savings Goals

Goal #1: Maintain a cash savings account for emergencies and short-term needs

We have roughly six months of living expenses saved for emergencies or expected short-term major expenses like our air conditioner going out. 

We keep this money in our Capital One 360 savings account.

Goal #2: Save the max in each of our SIMPLE IRAs

Our main business, FinCon, has a SIMPLE IRA for all of the employees. 

We plan on deferring the maximum amount of income to that account for our retirement savings. 

We use Vanguard to manage the SIMPLE IRA. Our accountant sets the payroll withdrawal up so that this happens automatically.

Goal #3: Save the max in each of our Part-Time Money Solo 401(k)s

Because the total you can contribute to your Solo 401(k) is limited by other self-employment accounts you might have, make sure you are not over-contributing what you can deduct on your taxes.

In our case, we have to reduce the max savings for this account by what was saved in the SIMPLE IRA above.

We use Vanguard to manage the Solo 401(k).

Goal #4: Save for each kid in their 529 plans

I’m increasing our 529 savings by a little each month. Our overall goal here is to provide most, but not necessarily all, of the funding for our kid’s college education. 

We use the Ohio 529 College Savings Plan to manage the kids’ 529 accounts. 

Since we live in Texas and don’t have a tax incentive to use a local plan, we just chose a highly-rated plan.

Related: The Complete Guide to 529 College Savings Plans

What else we’ll do with our money…

We plan on being able to do a lot more with our earnings this year. 

Here are two things that are high on our priority list: 

  1. Investing more in Peerstreet and Vanguard taxable brokerage. 
  2. Giving 10% of our earnings away to Church and charity.

I also think it’s important to be confident about what you are saying no to. 

At this time, we have no interest in buying additional whole real-estate (as opposed to shares), dividend-producing stock portfolio, cryptocurrency, art/collectibles, or additional businesses.

Avatar About Philip Taylor, CPA

Philip Taylor, aka "PT", is a CPA, blogger, podcaster, husband, and father of three. PT is also the founder and CEO of the personal finance industry conference and trade show, FinCon.

He created Part-Time Money® back in 2007 to share his advice on money, hold himself accountable (while paying off over $75k in debt), and to meet others passionate about moving toward financial independence.

Comments

    Speak Your Mind

    *

  1. We are saving money for a possible immigration, these months. If not, we’ll redirect it to our rural home development. I find it easier to save money, when you have some sort of a more tangible goal than a long term one.

  2. Amazing article, It is a really effective plan for financial independence. Small changes in daily life help us to save more and improve financial position. Thanks for sharing this informative post with us.

  3. Avatar Smile If You Dare says

    Yowza! That calculations you need to do for your Simple IRA and Solo 401k contributions makes my head hurt. Like you said: “…That’s a confusing mess I know. …”

    But I know it is definitely worth it.

    I went overboard for a long time with tax-deferred accounts. I contributed so much to IRAs and 401Ks, I neglected non-tax deferred savings. So while I had a lot in those tax deferred items, I had little other savings. Hurt me when I wanted to buy a house. Buying a house means down payment, and down payment means cash. So let’s not neglect regular savings and investment.

  4. My goal is to increase income as I live frugally already.

  5. Geesh, my goal for the year would be just to get to having an emergency fund as large and long lasting as yours is. Gotta start somewhere I suppose!