There’s no better feeling than when you set a goal and then you actually achieve it–even if it’s something small. Savings Goals in the Simple App help you achieve that glorious feeling, by making it easy to create and stick to a savings plan.
But once you start brainstorming all the things you’d like to save for, you might start to get a little overwhelmed: How do you figure out how much to save for each of your goals, and how do you know which to prioritize? Don’t worry! We’ve got you. Here’s a holistic approach to prioritizing all your financial goals.
Figure out your why(s).
Why do you want to start saving? Do you want more stability, freedom, flexibility, or power in your financial life? Do you want to make a career change, move across the country, grow your family, or adopt a whole bunch of shelter dogs?
Take some time to really think through why you want to start saving. Figuring out your why first will make it easier to identify and prioritize your different financial goals. You can also use it to motivate you as you navigate managing finances for yourself.
Why do you want to start saving?
Identify your needs, shoulds, and wants.
The old-school way of thinking about money groups all buying decisions into two categories: Wants and needs. But a lot of the decisions you make on a daily basis probably fall somewhere in between.
And there are also probably purchases that fall into a third category altogether: Shoulds. Maybe you aren’t thrilled to pay off your student loans, or put money into a retirement account, but you know it’s a good idea. You know you should.
In order to get a complete picture of your financial life, you need to figure out your needs, shoulds, wants, and everything in between. It’s important to note here that you determine what fits into each of these categories. Personal finance is personal, and the smartest decision on paper might not always be the decision that’s right for you at a particular time.
Get out a piece of paper (or start a note in your favorite note-taking app) and jot down what you consider to be your needs, shoulds, and wants:
- Needs are your essentials–the things you need to survive. What do you need to live and function?
- Shoulds are the things you know would help you in the long-term. What do you think you should be saving toward?
- Wants are where you can start to have fun. What do you want to do with your money in the near or long-term?
What you consider to be a ‘need’, might not seem essential to someone else–and that’s okay! That’s why it’s so important to think about your life holistically when you’re thinking about your financial plans, and make plans that are realistic and feel right for you.
What are your needs, shoulds, and wants?
Prioritize your needs, shoulds, and wants.
Is it urgent?
You might find goals within the categories we’ve discussed that appear to compete against one another. When it comes to your “shoulds” 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, give it an urgency rating, 1 through 5 (5 being extremely urgent). If putting off this savings goal will prevent you from achieving other goals in a major way, give it a higher rating. If it can wait, give it a lower rating.
How important is it to me?
Another approach to helping you rank your savings goals is to gauge where they fall in line with your personal values. If being completely debt-free as soon as possible is something that you deeply value, then you might prioritize saving money to pay off that debt over all other financial goals.
If you’re cool taking a little more time to pay off your student loans if that means you can travel a few times a year, then that might shift your financial goals as well. Look at your list and think about what you value most–and what you could live without.
What is the long-term impact?
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. By saving for an emergency fund, you’ll protect other parts of your life, too. Thinking about how a particular savings goal could affect other areas of your life can help you see how important it is in the big picture.
Turn your needs, shoulds, and wants into Expenses and Savings Goals.
Now that you’ve identified and prioritized your needs, shoulds, and wants, it’s time to put them into action!
Create Expenses for things you pay off regularly.
A lot of the items in your ‘needs’ category are likely to be bills that you pay on a monthly basis–like rent/mortgage, utilities, groceries, prescription costs, etc. The same is probably true for some of your ‘shoulds’–like student loan payments or credit card payments.
Create an Emergency Fund for rainy days.
If you are new to saving, or don’t yet have an emergency fund, that’s a great place to start. (We’d recommend adding that to your ‘needs’ list!) Check out this blog for everything you need to know about emergency funds!
Create Savings Goals for your short-term and long-term goals.
For those goals that might take a few months or years, start saving and earning compounding interest on them in a Savings Goal. In addition to the ‘shoulds’ and ‘wants’ on your list, be sure to think about anything on your calendar that might require some additional cash beyond your usual monthly budget. (Think: friends’ weddings, holidays, birthdays, trips, etc.)
When you create a Savings Goal, we’ll ask you a series of questions about your goal, like your target date for when you’d like to reach your goal, and how much you’d like to save. Then, it’s up to you whether to fund your goal on a schedule or add money whenever you can! (If possible, we recommend automating it so that you don’t have to remember!)
Remember: Personal finance is personal.
While prioritizing your Savings Goals is not an exact science, neither are the rules of personal finance. The most important thing is simply to get started! What’s right for someone else might not be right for you, and what you need will likely evolve over time.
As you learn more and your financial situation changes, you can always make adjustments to your financial plan. Check on your Savings Goals in the Simple app often, and follow us on social media to get regular inspiration and tips to help you save!
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