Are You Saving Money Effectively?
Saving money is top priority for many individuals, but saving without a goal often turns out to be ineffective. Financial goals are an important component to overall financial management. Setting financial goals will allow you to focus on your priorities, gain clarity and habits that will percolate throughout other aspects of your life.
This simple process outlines sensible ways to save money effectively
Establish Your Financial Objective:
You can’t get somewhere if you don’t know where you’re going. Setting clear goals will allow you to determine what you’re building towards and why.It will help you make wise financial decisions. The more detailed your goals are the easier it’ll be to take action.
Identify Your Timeline:
Once you’ve clearly determined your financial goals its time to put a deadline behind it. Categorize these goals by short term, midterm, and long term. Doing this will provide focus to your plan. It will benefit you to get as specific as you can with each goal; exact amount and the date you wish to reach the goal.
Short Term Goals: Goals you wish to achieve in one to three years.
Example: Saving for a vacation or building an emergency fund
Midterm Goals: Goals you wish to achieve in in three to five years.
Example: Saving for a down payment on a house
Long Term Goals: Goals you wish to achieve in more than five years.
Example: Saving for retirement
Do the Calculations:
To effectively reach your goals its important to know the amount needed each month. If your goal is to save $10,000 for one year for your emergency fund, divide $10,000 by 12 to figure out your monthly contribution. So $10,000/12 = $833 per month.If your plan is to save weekly you would divide $10,000 by 52.
Assess Where Your Money is going:
One of the most important steps to reaching your financial goals is establishing a solid budget. It is impossible to create a budget without evaluating your income and calculating your expenses. You must know your financial capabilities. How much money do you have coming in versus what’s going out? Is the outcome a budget deficit or a budget surplus? Doing this will keep your finances on track and will ensure that you have enough money for the things you need.
Revisit your goals frequently to track your progress, and continue to refine your plan. Setbacks and unexpected expenses will appear, don’t let it deter you from the end goal.