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The majority of individuals will spend a significant amount of their earning years saving up to reach common financial goals such as a down payment for a home, purchasing a car and investing for retirement. If one, or all, of these goals are ones you want to reach, chances are you might wonder whether you’re saving enough money.
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To reach a financial goal, you’ll need to establish a foundation — and consider your personal priorities along the way. Here’s how you can start saving to reach your financial goals.
Start by Establishing a Strong Financial Foundation
Angela Dorsey — CFP, founder and financial planner at Dorsey Wealth Management — said many people don’t achieve their financial goals because they don’t address the foundational items first. Before you can start saving for a financial goal, Dorsey recommends Addressing the following items:
- Create a budget. Where is your money currently going? If you don’t know, your budget will be able to track the amount of money coming in and going out and show you where you’re spending. To reach a financial goal like saving for a house, car or retirement, Dorsey said your spending should reflect your priorities and financial goals.
- Pay off credit card debt. Or at least pay it down. “The goal should be to pay off your credit cards each month,” Dorsey said. “If you find you cannot pay off your credit cards each month, it is a sign you are living above your means.”
- Start automating savings. After reducing unnecessary expenses, Dorsey said, you should start determining how much you can save and set up regular automated savings. Put this amount into a separate savings account.
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Create an Emergency Fund
An emergency fund is part of the foundation necessary for achieving your financial goals. Ideally, Dorsey said, this fund should be your first savings goal.
“It is hard to build up savings for a financial goal if you have to constantly dip into it to pay for emergency expenses that will come up,” Dorsey said.
How much should you keep in this fund? Dorsey recommends saving three to six months’ worth of expenses in an easy-to-access account.
Aligning Personal Priorities To Reach Financial Goals
After building an emergency fund and addressing the foundational items of your financial big picture, you can start to find the balance between saving for the future and enjoying life today, said Ashley Morris, CFP and director of financial planning at Facet.
This balance will look different for everyone. Morris said some contribute 20% of their income to savings. Others contribute more or less. Some will use strategies like Envelope or cash stuffing, paying themselves first or using zero-based budgeting. Each strategy may be adjusted to fit personal savings needs.
While there is no one-size-fits-all approach to managing money and reaching goals, Morris said those who want to hit their financial goals should reflect on their values and priorities. A good example is someone who is driving a 20-year-old car and has 30 years until retirement. In a situation like this, Morris said, it might be worth prioritizing a new car fund instead of worrying about a retirement nest egg.
What if you have your heart set on owning a home in the suburbs, with a yard for your dog? Morris said it might be best to put off buying the new car and focus instead on building up your savings for a down payment.
“For big goals like saving for a house or car, prioritize which goal is the most important to you,” Dorsey said. “Focus all of your energy on that goal. Once you have achieved saving for this goal, then move on to the next goal.”
Ultimately, Dorsey said, there really isn’t a uniform percentage Savers should strive for because it depends on your goals and cash flow. In time, some of your personal priorities are likely to change and your savings will align to reach the goals that matter most to you.
“It’s important to take stock of your goals at different stages of your life,” Morris said. “By getting clear on your goals today, you’re taking the first step towards achieving a bright financial future.”
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