When it comes to saving, making the decision to start is half the battle. Once you’ve taken this first step, you might feel a little in over your head when it comes to sorting out what’s more important; it might be a confusing jumble of wants and needs. Thankfully, with a bit of forethought and research, you can begin to prioritize your different savings goals.
Follow the order of needs, shoulds, and wants
To help organize your savings goals, start by creating a list of all the things you save for. Be creative! List everything you’re looking to save up for now, regardless of how lofty the goal. Once you have your list together, start to group things into categories—needs, shoulds, and wants.
Needs are things that you can’t live without—food, shelter, clothing, and other basic resources.
Shoulds are things that are best to start saving toward right away. These could be repaying student loans, paying off credit card debt, saving for a deposit on a home—whatever you feel is next-most important, after your basic needs.
Wants are where you can start to have fun. What do you wish you could spend your money on but never have the means to? Add these things to this final group.
While it can be tempting to skirt saving for a “shoulds” goal to focus on a far more enjoyable “wants” goal, do your best to stay on course. If you find yourself struggling with this, you’re not alone. Adopt a money mindset to realign your habits with your goals.
Place it on an urgency spectrum
You might find goals within the categories we’ve discussed that appear to compete against one another. When it comes to your “shoulds” savings goals, is it better to aggressively pay off your credit card, save for an emergency fund, or tuck away money for impending dental work? Here are some questions to help you wade through the muck.
- What will cost me more in the long run?
- What will help me save more in the long run?
- What will hurt me the most money-wise if I put it off?
- What will help me the most money-wise if I take care of it sooner?
- Can I hold off on saving for it without repercussions?
Take your time to really think it through. Get more info and crunch numbers if it will help you figure it out. For example, if you have student loans to pay off, get specifics such as the total amount, the interest rate, and the repayment plan.
From there, place it on an urgency spectrum. If putting off this savings goal will prevent you from achieving your goals in a major way, give it a higher number on the spectrum. If it’s something that isn’t as urgent, then you can give it a lower number.
Give it an emotional rating
As when decluttering your home or closet, it’s helpful to ask yourself if a savings goal gives you a spark of joy, or if it fills you with dread. Use your goal-prioritizing process as an opportunity to explore these emotions and figure out the reasons behind them.
Maybe you’re avoiding paying off your credit card because it’ll force you to look deeper into things you’ve been trying to ignore, such as your credit score. Or the thought of taking a road trip on Route 66 fills you with excitement because it’s something you’ve been wanting to do forever. While the choice to pay off debt or go traveling will make you feel different things, both options could potentially be assigned similar emotional ratings. Heading out on the highway could be great for your emotional well-being, but maybe an adjustment of the feelings you have about paying off your credit card is in order. A zero balance on your credit card could lead to the same feelings you’d get from traveling – freedom, clarity and calmness.
Give it a personal value rating
Another approach to helping you rank your savings goals is to gauge where they fall in line with your personal values. If you’re an avid cyclist who advocates for lowered car emissions, a swift road bike may have a high personal value rating in your book. Or if you’ve been itching to put your green thumb to use, you’ll want to get serious about saving for an urban plant garden.
By going through your goals based on your personal values, you may end up eliminating some of your goals completely. You may even discover some pushed-aside truths about yourself. Maybe you just thought you wanted to backpack in Europe because your best friend is a globetrotter, but after digging deeper, exploring locally may be just as exciting to you.
Determine the long-term effects
Here’s where it helps to be objective. Thinking long-term may not always be easy, especially if you’re not in a place to take action right away. It will, however, help you gain clarity.
You can employ the 80/20 rule, which states that 20 percent of what you do affects about 80 percent of your life. When it comes to savings, what are the big-ticket items that will affect the rest of your life financially?
For example, if you don’t have an emergency fund, not only could that add stress and anxiety to your life, but you might have to resort to using a credit card for an unexpected expense. That, in turn, could ultimately hurt your credit score. By saving for an emergency fund, you’ll protect other parts of your life, too. Examining how a particular savings goal could affect other areas of your life will help you determine how important it is.
While prioritizing your savings goals is not an exact science, neither are the rules of personal finance. Just spend some time sorting things out and do your best. You’ll be fine and be on the path to do amazing things with your money.
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