How to balance competing savings goals
Saving money sounds easy – save money for a future purpose – but in reality, people often face competing savings priorities. We want it all: travel, home, streaming savings account. So how do we know which savings goals to set first, especially when we’re working on several things at once?
says Nisha Jones, a certified public accountant and founder of ASE Group, a full-service accounting, tax, and advisory firm in West Orange, New Jersey. Saving is further complicated by the fact that we are currently facing economic uncertainty, rising prices for everyday items and a turbulent stock market.
Prioritizing savings isn’t easy, but these strategies can serve as guideposts:
Put your emergency fund first
Think about how you felt the last time you were unable to cover an emergency, says Jones. “If it’s causing you great anxiety, keep that feeling in mind when setting priorities.” In other words, create a file emergency fund Before anything else, because it is very important for financial security.
“Now more than ever, people are realizing the importance of a rainy day fund,” says Eric Maldonado, certified financial planner and owner of Aquila Wealth Advisors in San Luis Obispo, California. “It’s essential to have cash in case things get more expensive.”
Next, prioritize retirement
“Retirement is a long game and time is on your side, so even if you start something very small, the more time you give yourself to work on it, the better,” Jones says. “If you keep putting off retirement, we’re closing our eyes and now we’re struggling.”
Thinking about worst-case scenarios for not saving for different goals can help emphasize the importance of Funding for retirement accounts. You should save for the categories with the most serious consequences first — and retirement tops that list, says Noah Damsky, director of Marina Wealth Advisors in Los Angeles, since no one wants to be poor in old age. “Going through these scenarios helps crystallize what’s important,” says Damsky.
Decide what you want in the short term
This next category of savings priorities is complicated, because you have to Determine your goals for the short term. It might include buying a house, traveling, moving to a new city, starting a family, or something else entirely.
Shafer II, CFP and founder of Life Moves Wealth Management in Scottsdale, Arizona, recently moved with his family to that area of Michigan, and his near-term goal is to save up to buy a home there. The pandemic has prompted many people to make major changes to their lifestyle, he says, and as a result their near-term savings goals have changed.
“Sometimes we reset expectations and sometimes we achieve more than we thought,” he says. It is important to check the progress of your savings at least several times a year so that you can recalibrate when needed.
Jay Zygmont, CFP and founder of Childfree Wealth in Water Valley, Mississippi, works with childless clients who do not plan to have children. He says many of them focus on major life transitions, such as starting a business, traveling abroad, traveling or taking time off work.
“You may not be able to do everything at once, but you can do most things over time,” Zygmont says.
To keep all of these goals in perspective, Maldonado suggests opening a separate savings account for each one and giving it a nickname, like “Greece, $5,000” or “Lake Cabin Rental, $1,500.”
Connected, High yield savings accounts They tend to offer higher returns than those of traditional banks, and you can set up automatic deductions from your checking account or paycheck. “It’s the positive inertia that keeps the money going where you want it,” he adds.
You can always make changes later. “Just get used to saving, and then you can go back and add other goals,” Jones says.
Enjoy life along the way
While saving is important to all of these priorities, so is enjoying life today. Don’t wait until you have a fully funded retirement to put money into things that bring you happiness, Jones warns. That’s why she’s saving up for a Tesla, which she hopes to buy by the end of the year.
Maldonado and his wife contribute a set portion of the money to the Family Fun account. “We drain it every three months. It’s a guilt-free spending on the family,” he says, going toward things like camping trips, museums, or parties. With their savings safely stored in other accounts, the whole family can feel good about spending it.
This article was written by NerdWallet and originally published by the Associated Press. The content is for educational and informational purposes and does not constitute investment advice.