Five Ways to Achieve Your Savings Goals
- Saving money is a key tactic many people use as a precautionary measure against unexpected future circumstances which could have a financial impact.
- As saving money can be difficult, some standard methods are creating a budget, setting up automatic transfers, and using your tax refund money.
- Once you have reached your savings goal, the next plan of action should be to put money towards an investment or retirement account.
Many people set money aside for an emergency fund to prepare for anything that could happen. The emergency fund comes in handy when an unexpected financial crisis occurs, and they need a large sum of money to alleviate the situation. However, if saving money is difficult for you, below are five ways to help you save money easier and achieve your financial goals fast.
1. Create a Monthly Budget
The first way to reach your long-term goals is by creating a monthly budget. A monthly budget allows you to spend money wisely while also setting money aside in your bank account. While spending money, it is essential to track your transactions whenever you buy something with a debit or credit card.
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Whether it be in a physical journal or online on a spreadsheet, having a place where your activity is constantly monitored allows you to hold yourself accountable and make changes to your financial habits when necessary.
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2. Differentiate Between Wants and Needs
When using your monthly budget, you will see many transactions occur throughout the month. When going over these payments, knowing which ones were wants and needs are key in ensuring that you meet the savings goals you have written for yourself.
Wants are expenses that are not considered necessities. Wants are when money is spent to access experiences that make life enjoyable. For instance, an example of a want would be dining out with friends.
Although the money spent creates experience, if done excessively, it comes at the expense of not having money left over for other things, such as building long-term wealth. As a result, before spending money on wants, it is crucial to ensure your needs are met.
Needs are on the opposite side of the spectrum as these costs are essential for living. Some of these examples include transportation, food, utilities, and rent. Needs are expenses required to ensure your life continues functioning, and if these expenses are not paid on time/in full, they could have detrimental consequences to your life.
3. Set up Automatic Transfers
Although a monthly budget can help with your savings plans, sometimes you can get carried away with spending, which could negatively affect your short-term and long-term goals. As a result, one way to ensure you do not impact your budget is by setting up automatic transfers from your checking account to your savings account.
Automatic transfers are one way some people try to ensure they save each month. Unfortunately, when an excessive amount of money is set aside in your checking account, you may make impulsive purchases. To ensure their money is used effectively, some people use this technique to prevent themselves from overspending.
4. Use Your Tax Refund
One of the best ways to jumpstart your savings plans is by using your tax refund. At the end of the year, when the federal government issues you a check or direct deposits the tax refund, set the money aside for a later date when needed. Yes, you can use the tax refund to treat yourself, but it may not be the most effective utilization of your money.
Recommended Read: How to Spend Your Tax Refund Wisely
Going back to the point of differentiating between wants and needs, having sufficient funds in your savings account is a need, whereas going on a shopping spree is a want. Consequently, as needs should come before wants, it is important to ensure the money you have set aside for emergencies is enough before using it elsewhere.
5. Contact a Financial Advisor
If the above steps have not helped you achieve your savings goals, then the next plan of action should be reaching out to a financial advisor. Financial advisors have a background in personal finance and can help you take your financial planning skills to the next level. In addition, financial advisors will typically present you with a couple of options suitable for your lifestyle that will meet your financial needs and goals.
Recommended Read: 2 Questions to Ask Before Selecting Your Financial Advisor
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Why Having a Savings Account Matters
Having a savings account matters as it will allow you to prevent unforeseen events from causing financial setbacks. Those with savings accounts have incrementally set funds aside for when there comes a time that requires an abnormal amount of money. By consistently putting money aside, you are taking proactive steps to ensure unplanned expenses do not have a negative impact on your financial position.
Where Else to Put Your Money
Once you max out your emergency savings fund, there are a couple of options where you can effectively utilize your money.
The main key to financial success is growing your money annually. Investing is more beneficial than keeping your money in a savings account because of the increasing inflation. People use investing as a coping mechanism to the rising costs. As stocks typically increase over time, the return on the initial investments will be higher than the inflation rate.
When done right, investing allows your money to earn interest over time and increase its value exponentially. For example, the historical average of the S&P 500 has been 11.88%. So, over time, the interest rate earned on your investments will compound, resulting in its value rising more than the inflation rate.
Inflation causes the purchasing power of a currency to lower in value, which is why many companies raise their prices. When companies raise their prices, they increase the cost to attain the same goods and services.
After your savings account has a sufficient balance, a possible course of action could be to open a retirement account. Saving for retirement is key, as your income level will not stay the same once you choose to retire. When that time rolls around, your retirement savings will become your primary source of income.
Recommended Read: How to Choose a Suitable IRA Account
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Consequently, the financial decisions you make today will have a ripple effect on your retirement comfortability. Depending on the success of your investments and the volume of money you set aside, your financial comfort will vary. Therefore, to give yourself the best chance of having a financially comfortable retirement, try to put money aside whenever you get a chance, so when retirement does eventually come by, you have some cash to spend however you like.
The Money Wrap-Up
There will come a time when you need access to a large sum of money for an unexpected expense. Regardless of your financial position, it’s important to consistently contribute to a savings account to ensure these circumstances do not stress you out.
If you need additional help with your money goals, contact CapWay to get more information to guide you on your financial journey. CapWay is on a mission to help you bank smart, learn about money, and become financially responsible.
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