Whether you're saving money for college or the future, it's always best to set your goals and establish them so you have a light at the end of the tunnel.
If you're merely saving for a rainy day, or perhaps to keep yourself afloat in case you're let go from your job, having no real goal makes goal setting a challenge. So the first step is the set your goals for saving.
Set your Goals
What is it that you're saving money for? A home or a car? It's best to consider what the total expense will be, not just the sticker price. For example, when you purchase a home, you will need enough for down payment but may also need a lot of extra stuff when you move in that you didn't need when you were living in an apartment, like tools, a lawnmower, or extra furnishings.
Be sure to take into consideration the entire scope of your goal when deciding on a savings number. At the same time you need to take inventory of how much cash you already have on hand that can be added to the savings. This assessment is going to give you the most accurate estimate of how much you need to save and how long it will take you.
It's a great idea to have three months of living expenses in easy access savings at all times in case of emergency. If you don't already, this needs to be your first goal setting task. And once you save this emergency fund don't consider it as cash on hand for savings goals.
For long-term savings goals, such as retirement, you'll need to do a lot more research and planning. It can be hard to start planning for a time that seems so far away, but the earlier you start the more likely you are to meet your savings goal. Just use this simple rule of thumb, the longer you have to save, the easier it will be.
Determine your Timeframe for Saving Money
Figure out how long you have in order to save. The longer the time period, the easier saving will be. Once you have the amount you need to save and the time frame, research your savings account options to determine which one would best suit you.
Get rid of debt first
Saving is incredibly important, but if you're already in debt it may not be wise to make any large purchases. After you set your savings goal, get rid of your debt before you start saving money for a large purchase.
How Much to Set Aside?
This depends on what you can afford each month. After you know how much you need to save and for how long, decide if your goals are realistic. If you want to put a $20,000 down payment on a home in three years, you'll need to save about $550 per month. But if your paychecks amount to $1000, it's not really a realistic goal, so adjust your timeframe until you come up with an approachable amount.
For retirement plans, it's typical to put away 10 percent of your paycheck away every month.
Set a Budget When Goal Setting
Once you have set your savings goal, it can be helpful to set a budget also. This will help you reach your goal and eliminate unnecessary spending. Make a list of your essential expenditures, like rent and car insurance, that you make every month. Then take a month and list all your purchases. See what you spend your money on and try to reduce purchases that you don't need.
Once you figure out your budget based on your income, you can free up cash and start saving for that home of your dreams.