by Danielle Arlotta CFP®, Lead Planner
To have a solid foundation for your finances to grow, you need to start from the beginning. Knowing what you are saving for will help to motivate you to save on a more consistent basis. Even if you start small, seeing the progress you are making will encourage you to continue to save more. We’ll start with savings since it is usually a big motivating factor for getting your finances in order. Most people have some goals that they want to save for and want to know what it will take to get there. Follow these steps to get clear on how to turn your goals into reality.
1. Establish the goals that you are saving for
Think about some things that you want to accomplish within the next year, 5 years, and 10+ years from now. This will help you to establish those goals. If you have a time frame for a goal, like a vacation, we suggest taking that total amount and dividing it by the number of months you have to save. That way you know exactly how much you need to save a month. Everyone is different and if you dive in head first with saving too much you might get burnt out and only save for a short period. The key to savings is consistency. You can always increase the amount as you get more comfortable with your spending plan.
2. Calculate how much you need in an emergency fund
A general rule of thumb is to have about 3 months of total living expenses in your emergency fund. If your income fluctuates or you are self-employed you may want to have more. If you are just starting with building your emergency fund aim for having 1 month’s rent, then you can work your way up to 1 month of expenses and continue to save from there.
3. Open a high-yield savings account
Your emergency fund should be in a savings account. But, not all savings accounts are created equally. Moving your money into a high-yield savings account will give you a higher interest on the money in that account. That means that you will earn more for your money sitting in the bank. Online banks like Ally, Marcus, and Capital One have high-yield savings accounts that have no fees and no minimum balances. Clients of Brooklyn Plans have access to Flourish Cash which is currently offering 4.4% on deposits. Contact your Lead Planner to get an invite.
4. Track your goals
Things change and you want to make sure you are still on track to meet your goals as you continue to save. One way to do this is to set up different savings accounts for different goals. Most people are saving for multiple things at once so having a clear view of each goal’s progress is easier with a dedicated account. There are some savings accounts, like Ally Bank, that will let you create buckets within one account for this purpose.
5. Automate it
Now that you know how much you can save every month, you can automate it. This will help you get that money into savings so that you don’t have to even think about it. Some payroll systems allow you to split your paycheck so that your savings goes automatically into that savings account and the money you have allotted to your allowance goes to your checking account.
Your Next Steps:
☐ Open a high-yield savings
☐ Set-up automatic savings
Pro-Tip: Start small– you can always increase how much you save regularly down the line.