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The Right Approach To Setting Savings Goals
Have you ever thought, “I want to save but I’m not sure how to properly approach it?” You’re definitely not alone.
Saving for the sake of having a savings account is not always the best strategy. It's important to have goals. Ask yourself: what are you saving for? Are there multiple things? How long will it take you to reach your goal? Saving can be very difficult, but having goals really helps you to put money away for something that is important and meaningful to you.
Goals bring us down to earth a lot and keep us motivated for the long term. Try setting a goal to go on vacation, buy a car, or complete your dream kitchen renovation. It’s also important to have a healthy balance of long, mid and short term goals:
I want to retire at 65 = long term goal
I need a new car = short term goal
I’d like a vacation = short term goal
Renovate the house = mid term goal
Buy a new house = mid to long term
How do we balance all these goals? More importantly, can we balance all of them? The answer is yes.
First, portion out your individual goals. How much will you need to put away? Are you comfortable with it? Is it in your budget?
You have to be strategic with your portions and where you invest them. A useful tool to measure your potential savings is something called the ‘Latte Factor’. It’s an easy example to follow: Add up the cost of your cup of coffee in the morning and see how much is available. Now that doesn’t mean that you should give up your morning coffee, but it does help to put it into perspective. It helps you to ask the question: If I’m saving for a new car, should I stop to buy that cup of coffee or would it be better to make it at home. How important is that major purchase down the line, compared to my morning cup of coffee?
Now this doesn’t apply strictly to coffee, it can be any discretionary expenses that you make on a regular basis. At the end of the day, it can be a difficult decision to make, but it’s a great start to put your daily expenses in perspective and help you with your budgeting decisions.
At the end of the day, it really comes down to your goals and how much you value those goals. Are you saving enough to reach your goals? Can you afford to not reach those goals if you don’t have a proper savings strategy in place? Should those goals be changed? These are all important questions to consider, and they illustrate why it’s super important to set goals early and start on your path to saving.
Speak to one of our knowledgeable wealth advisors for advice on how to set up your savings goals.
Wednesday | January 1, 01:49 PM