We have all been through a wild ride these past couple of years, with prices skyrocketing on many – perhaps even most – of the items we purchase regularly. It’s put a strain on budgets and forced us to reevaluate our finances.
But, it doesn’t change the fact that many of us have things we want to do in the future. Maybe you want to start saving for retirement (or save more that you currently do). Perhaps you would like to get out of renting and purchase your first home. Maybe you anticipate needing a new car, or getting married, or starting a family. Or maybe, after a difficult couple of years, you just want to get yourself out of debt.
Whatever your life goals are, most come with financial ramifications, and there’s no time like the present to start planning, so you can do all the things you would like to. Here are a few simple steps to get you started.
Identify Life Goals
The first step is to actually set your financial goals for the future. It’s not always an easy task, especially with uncertainty still looming over the global economy. But, try to see yourself in five years or 10 or even further out, and picture what you would like your life to look like at that point.
You’ll need to prioritize your goals. Some may be more important, and some may have shorter time frames. Look at the things you want to accomplish in the next 1-3 years, then next 4-10 years, and even farther out than that. You’ll need to focus on things you want to accomplish in the next 1-2 years before others that may be 5-10 years out or more. But, the sooner you start saving for longer-term goals, the less of an impact it will have on your monthly budget – and the more you’ll have saved up at the end.
Next, you need to determine what those goals mean for you financially. How much will you need to save to do each of these things? This will help you set your financial goals in a way that allows you to save enough while still having enough to meet your regular monthly expenses. Make a list of your planned projects, activities, and life events, along with estimated costs for them. You may not know exactly how much you’ll need, but a generous estimate may help you create a good financial plan.
Your Current Financial Situation
Now that you’ve created a prioritized list and now much you’ll need to save for each item, look at your current finances. If you already have money saved up for future needs, how much of that are you willing to dedicate to these goals? Ideally, you want to avoid draining your existing savings so you have enough left for unexpected expenses that may arise. That will give you a picture of how much more you’ll need to save.
Then add a time frame or deadline for each of those goals, which will allow you to calculate how much you’ll need to save each month to meet each goal. If you plan on buying a home in 3 years, have $10,000 saved already, but know you need $15,000 more, you know you’ll need to save about $400 each month for the next three years. Tally up all those monthly savings needs to see how much you need to save together to meet all of your short- and long-term goals.
Here’s where it can get a little tricky and where your prioritization comes into play. Once you have a savings target, it is helpful to look at your monthly income and current spending patterns or budget to know how much you can afford to save each month. If you’re lucky, you will be able to save enough every month to accomplish all your plans.
There’s a good chance that’s not the case, in which case you may need to perform a juggling act and figure out which items you can delay saving for or reduce for now, and which ones are most important to start right away.
For instance, if you’re planning on getting married, starting a family, and sending your kids to college, you might put off starting a college fund until your children are born, so you can save enough for your wedding and renovating your home with a new nursery. On the other hand if you also plan on buying a home, you may need to save for a down payment and, the longer you wait to start saving, the longer you’ll have to wait to buy a home. But, if you’re comfortable living in your current arrangement for a few more years, you may be able to dedicate more to a wedding and a new vehicle when your children are born.
The important thing is to set your goals now and to start saving for them. Even if you can only set aside money for some – or even one – of you your goals, getting started will help you reach each of them faster. There’s a lot that goes into creating an achievable financial plan, and many factors to consider. If you need help getting it done or understanding the best kinds of accounts to put your savings into (you may want to put your savings for short-term goals in separate types of accounts than for longer-term goals), your local bank’s representatives are skilled at helping people make the most of their money.
Regardless of how much of how little you’re able to save today, the good news is you’re getting started. Also, hopefully, your circumstances will improve over time and, as that happens, you will be able to revisit your goals and reevaluate priorities and how much you can dedicate to each one. Maybe you’ll be able to speed up the timeline for some, or add things you weren’t originally able to plan for. But, remember, it may not happen if you don’t create a financial plan today.