How to Save Toward a Goal

Do you have a large expense to pay for in the future? Do you need a reason to spend less money? Why not spend some extra money since you have it? You might hear people talk about a large purchase they recently made and wonder how they could afford the expense. You can find yourself in the same situation by saving toward a goal.

Many use the SMART acronym to set specific, measurable, achievable, realistic, and time-based goals. Let’s walk through an example of how to create and start saving toward a SMART goal.

Step 1. Determine Your Goal

Saving toward a goal helps motivate you to keep saving your money. Saving for intangible concepts can be difficult to execute, since you’re saving money for the sake of spending money. If you want to start saving but need some inspiration, here are some goals to save toward.

• Down payment for a car – Some people replace their cars every couple of years. Others keep their cars running for as long as possible until it’s just too expensive to repair. Whatever method you use, cars are expensive. Saving for the down payment of a car is a tangible financial goal. Pick out roughly which car you plan to purchase next, so you have an idea of how much you need to save.
• Emergency fund – An emergency fund is a stash of money that you should only use in emergency situations. This can include unexpected medical bills, funeral expenses, or sudden house repair needs among a variety of other things. By having an emergency fund, you can avoid financial strain when these situations arise.
• Education – Whether you plan to take professional development courses, enroll in college, or go to trade school, continued education is expensive. Plan to save a percentage of your tuition to help cover the cost can help you delay the need for student or personal loans.
• Vacation – Vacations are all fun and games until you realize how much money you’ve spent and will continue to pay for through your credit card bill. While planning every expense on a vacation is unrealistic and even boring, you can still save for these experiences. Create a vacation fund to help cover the cost. This will help you spend more time enjoying your trip and less time stressing about money.

For example, I want to save money for grad school. This is the S in my SMART goal.

Step 2. Calculate How Much You Need to Save

This is where the M comes in. One of the hardest parts of saving toward a goal is determining how much money you need to save. If you’re saving for a large expense, calculate a percentage that you want to save. For example, save 20% of your next car’s sale price. For expenses like an emergency fund, education, or vacation, save a certain dollar amount. $1,000 in an emergency fund or vacation fund is a great starting point. You’ll likely need to save more to cover education costs.

I need $2,500 for my next semester of school. This is the M of my SMART goal.

Step 3. Determine Your End Date

Your end date is the date when you need to have your money in hand. Some goals come with firm dates, such as the first day of school or the day you go to the airport. For other goals, your date can be flexible. Still document your target date to make your goal achievable.

I’m going to skip the A and R and determine my T. I need to pay for my school expenses by December 31. This is the T of my SMART goal.

Step 4. Budget Your Savings

Now that you know how much money you need and when you need to save it by, you can start to budget. If you already follow a budget, you can add this as another item to your list of expenses. If you don’t follow a budget yet, check out this article on how to create a budget. To determine how much money you need to save each month, first subtract what you already have saved for this goal by the total you need to save. Next, divide the new number by the number of months you have to save. This is how much you’ll need to save each month.

This is where the A and R come in. I’ll start saving in July, which gives me six months to reach my goal. I don’t have any money currently saved toward my goal. Dividing $2,500 by six gives me $416.67. I’ll round up to $420. Since I get paid twice a month, I’ll contribute toward this goal with each paycheck. This means I need to save $210 from each paycheck.

Here’s a breakdown of my plan:

• S – I’m going to save for grad school expenses.
• M – I need to save $2,500 total.
• A – This means I need to save $210 per paycheck.
• R – To meet my goal, I’m going to reduce my entertainment budget by $60 a month, or $30 a paycheck, and reduce $100 from my general savings a month, or $50 per paycheck. In addition, I’m going to temporarily increase my hours at my side-hustle by 6 hours a week to earn an extra $130 each paycheck. $30 + $50 + $130 = $210.
• T – I’m going to meet my goal by December 31.

Step 5. Start!

Now that the math is out of the way, you can start saving toward your goal. Consider opening a separate savings account for this money, such as a High Yield Online Savings account, so you don’t dip into it for other purchases. To make the process easier, use online and mobile banking to automate transferring money into this account regularly.

Now you have the steps you need to save toward a goal. When you are ready to open a separate account for your goal, visit Alltru. We can help you choose from a variety of savings accounts so you can get the most out of your money. Good luck!