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Next up? Short-term and long-term savings accounts! These are great accounts to get you on the right track to those savings buckets. But before you can dive into the purpose of your accounts, first you need goals! Goals are a key component of making your money work for you. If you are not writing and setting goals for yourself, you cannot track and gauge your progress.
For a comprehensive article on writing financial goals, check our our S.M.A.R.T. Goals article.
Thinking about your goals allows you to figure out how long you need to hit them. (How big you need to make your buckets.) What are you aiming to do? Go on a vacation? Get a new computer? Buy a house? Save for a new pair of shoes?
No matter the dollar figure, big or small, you should be budgeting and saving for what you want to buy. Let’s jump into each savings bucket in more detail and how you can implement good habits for using them.
This is your bucket for items you would like to buy in the next 3-24 months. Shorter term goals, typically have smaller budgets. I.e. saving $10,000 in 12 months might be unrealistic and either the goal or the amount saved might need to be approached differently.
For example: If you want to save $3,500 for a down payment on a car in the next 6-12 months or you’d like to buy a new iPhone next year for $800. These would be goodShort-Term goals and your savings bucket or account you’d save this money in, would be a short term savings account.
(Check your bank for details.)
This is the financial long game, saving money for things that might be two years out to fifty years out. Think about it this way. This is your endgame account. What do you want out of your money and how much do you need to save to get there?
For example, if you are 22 years old and want to buy a home at the time you are 30. You’d use a long term savings account and S.M.A.R.T. Goal to get you there.
Let’s break down how we’d use this account along with our budget to save for a home purchase.
You have 8 years to hit this goal based on your current age and when you want to buy a home. You’ve decided you want to have $65,000 saved by the time you are ready to buy.
$65,000 / 8 years = $8,125 / year
If the goal is to save $8,125/year, let’s break that down on our budget monthly.
$8,125 / 12 months = $677.09 /month.
We need to save $677.09/month for the next 8 years to hit our goal.
Long-term savings goals take discipline. Use your budget, track your progress, and hold yourself accountable. That said, life does happen. There might be a month you cannot continue the full amount, that is okay! Keep pushing and add a little extra in the next month.
Long-term savings accounts can also be used to save for 10-30 year goals, whether that is a 3-6 month sabbatical from work. Another property purchase or buying another piece of real estate. It is all about your plans and what you do to hit those goals.
Lastly, saving for retirement. We all look forward to the day when we get to stop working and retire, or so that is the goal. In order to set yourself up for retirement, you need to save money even if it is just a little at a time every month. The more money you can save at a younger age, the longer it has to grow, the more you can build your retirement buckets.
When we say saving for retirement in a long-term savings account, we are not referring to your 401(k) or pension with your employer. You should absolutely be using those account types! This long-term savings account should be in addition to what you’ve been saving with employer retirement plans.
Your personal retirement accounts are additional funds you are setting aside for later in life. Giving yourself more than one retirement account and more than one stream of income in retirement.
That is a breakdown of Emergency Funds, Short-Term, & Long-Term savings accounts and how you can start saving for working through your goals.
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