Let’s talk saving money. We work to make money so we can buy the things we need and do the things we want. When all of your wants and needs can be purchased with the money you bring home regularly each month (or pay period) earning and spending is just a simple game of give and take; however when a little—or a lotta—something extra pushes the expense of your needs/wants beyond the amount of cash you bring home each pay period, you will need to spend some time saving up before you can make that purchase.
The rate and intensity at which you save up for an upcoming expense should be determined by examining three key factors
1. Size of the Upcoming Expense: Even though the idea of a “savings account” is often perceived with a “Go Big or Go Home” mentality, it’s important to acknowledge the fact that saving-worthy items and opportunities come in all shapes and sizes.
2. Time Frame: The intensity at which you save will be directly impacted by the amount of time available to get the job done. If your purchase is going to be made a little over a year from now or 1-3 years into the future, you might save at a more leisurely pace, but if your purchase or payment is just around the corner you will probably need to put away bigger chunks of money each month due to the shorter timeline.
You can reference the line graph above to more easily examine the time frame factor is to picture yourself with the goal of saving $500 to buy gifts for your family and friends during the holiday season. If you start on January 1st, you will have 12 months to save all of the money you need and can save at a rate just shy of 50 bucks a month to easily reach your goal. If you start saving on September 1st, you have about three and a half months’ time to save all of the money you need and will need to hold on to $150 a month to reach your goal of $500 at the desired time.
3. Personal Preference: I didn’t really even notice that personal preference was a factor in determining the rate at which you save until Sam and I started talking to each other about our saving plans for similar upcoming expenses—and we realized that our plans were fairly different. Both were good, and each would meet the end goal just as well as the other, but they were different.
I prefer to save more intensely up front and then more leisurely as my goal gets closer. Sam prefers to save a little less initially and hit it hard right before she reaches the finish line. Sam’s style might give me an ulcer as I slowly watch my savings reach its peak, and my style will make Sam’s head explode from boredom or frustration as she saves money that she knows will be there at the end of the timeline anyway. Saving up in a manner that suits your personal preference will keep you feeling comfortable and confident throughout the process. Confidence in your cause will increase the likelihood that you successful achieve your savings goal, and comfort will keep you (and those around you) sane and happy throughout the process. Find your preference and don’t be afraid to follow it.
Once you know that you have an upcoming expense and have acknowledged its size, your time frame, and personal preference for reaching your savings goal, you will need to choose your method for the saving up. There are a few different strategies that can greatly aid in decreasing financial stress and extended periods of financial burden.
Strategy 1: Immediately funnel any additional income into your savings account. Additional income includes any money you obtain/earn that is not regularly received during your pay period. Examples include but are not limited to federal and state tax returns, bonus checks at work, and birthday or Christmas money.
Strategy 2: After taking care of all your living expenses for the month, put all “leftover” money into your savings account. This method works well for people who are motivated by quicker results and those who experience a pang of anxiety each time they think about the money they have not yet saved. Get it done and get over it!
Strategy 3: Put a set amount of money into your savings account each pay period. This method works best for those people who are less concerned with saving at a rapid pace and will be satisfied as long as the money is there when they need it at the end of their journey.
For more information about setting goals and managing your savings funds read our previous posts on How Life Changes cause Goal Changes and The Difference between Emergencies and Saving for “Extras”. For more information on controlling your finances check out our Getting Started tab in our main menu at the top of the page!