Anything? Yes, you can save up for anything. Follow these steps.
Prioritize. Prioritize. Ever get the feeling that, even though you made it through another dizzying, chaotic day at the office, you can’t remember accomplishing anything? That’s called a lack of prioritization. The same happens with money. If you don’t have a plan (i.e. a priority) for it, somehow it manages to get spent on whatever happens to be a priority at the moment.
How to prioritize? Setup a savings account and automatically transfer money to it each month. Trust me. Automation = happiness.
Track Your Spending Habits. So now you have a savings priority. And you’re putting cash towards that priority every month. Where’s that automated money transfer coming from? Will I be able to eat this month? If you don’t know what you’re spending, you don’t know where to pinch pennies. Software works well for this exercise. If it weren’t for software, I’d be a financial wreck. Luckily, most contemporary personal finance software will download transactions automatically from your bank account as they clear.
You can also use good old fashioned pen and paper. I don’t like this method because I always lost about $50 worth of receipts each month during this madness phase. Didn’t matter how hard I tried not to. If you’re a PC user, try Quicken or You Need a Budget (YNAB). I like YNAB because it forces you to save a month’s salary in small increments so you’re not having to time your bill payments. You just pay bills as they come due.
If you’re a Mac user, I highly recommend MoneyWell from No Thirst software. It’s an envelope budgeting system except it uses buckets vice envelopes. It’s slick and, once you get through the initial setup, almost too easy.
Set Your Date then Calculate. Once you have a date for your savings goal, work backwards to calculate how much you’ll need to save each month. You might want to set a “fudge” date to account for any minor setbacks. Having a due date makes it real. If you don’t start saving now for the vacation you’re planning next summer, well, no vacation. And that’s not a good thing.
Get Accountable. You don’t have to announce your goal to everyone. But mentioning it to a trusted friend, or circle of friends, will keep you in check. It’s hard to lie to good friends. It’s even harder to avoid them. There’s a little social pressure here.
Be Realistic. You’re motivated. You’ve set a date and monthly savings goal. You’ve told your best friend. Now you’re feeling a little *blah*. That can happen if you’re too aggressive with your goal setting. You may think you absolutely must have the second generation iPad in two months (second generation? yes, it’s coming). Which is totally possible if you forgo eating any meals the next month.
If you’re setting goals and quickly tossing them, they might be too unrealistic. It’s the same thing for the reverse. If you’re setting goals and easily meeting them, then they might be too easy. Set something in the middle. Something just right.
Pick Your Cold Turkeys. I think this is the biggest, hidden financial goal derailer. We make huge goals that require huge sacrifices. So we cut out everything all at once. But if you’ve never cooked a meal in your life. And all the sudden you’re not allowed to eat out, how long do you think this will last? Not very. So pick one reasonable expense to go cold turkey on. Maybe it’s eating cereal for breakfast and brewing your own coffee. Once you’re acclimated, pick something else to dump.
Small Stuff Matters Too. My wife and I share a cell phone plan. We don’t have a home phone (bonus) so we decided to cut the cord completely. My wife runs her business on her cell phone. So she needed something sturdy. Unfortunately, the phone she picked out required a data plan.
However, after the first year, we took another glance at her data usage and realized she almost never accesses the internet from her phone. We marched in the local Verizon office and within a few minutes had reduced our cell phone bill by over 60 bucks per month. 60 bucks! What’s the lesson? Sometimes you can find savings in the most inconspicuous places. If you’re willing to question the small stuff.
What now that you’ve reached your first savings goal? Repeat the cycle. Getting to that first goal is paramount because of it’s mental boosting energy. Once you see that you can save, reaching your next financial goal won’t seem as daunting.