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SAVINGS BUCKETS | SAVING TO YOUR GOALS
SAVINGS BUCKETS | SAVING TO YOUR GOALS
A guide to short term, long term, and retirement savings and when to use each type of account.
Money! We all want it. But how do we get it? Building wealth is easier than people sometimes think. There are many strategies to make your money grow and work for you. At Financial Footwork, we believe building wealth starts with your budget.
EMERGENCY FUND
In this article we’ll start with the basics, by looking at three different types of savings accounts: Emergency Fund, Short-Term Savings, and\ Long-Term Savings. Each of these accounts have a purposeandyou can have more than one savings account in each bucket. (This helps you organize your expenses, within your expenses.)
First up? Emergency Funds. This is a bigger category, so we’ve got a full seperate article to walk you through it step by step. For more details on Emergency Funds, take a deep dive into setting up and calculating your emergency fund HERE:
GOALS
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.
Short-Term Savings Accounts
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.
Having multiple short-term savings accounts can be a good thing. If you need to see each bucket of money and your progress for each goal. Open multiple accounts. Savings accounts at most banking institutions are free! If you are like me, you want to keep your buckets separate and track every dollar. Do it, opening a savings account is simple and can be done online with most banks.
(Check your bank for details.)
As you save for each of your respective goals, transfer money into the account of your choice and watch that balance grow. Do what works for you when it comes to tracking and saving money. If one bucket of money for all your short-term savings goals works, then one account is all you need.
If you need a bit more help tracking and watching your progress, open a new account for your goal and once that goal has been reached. Set your next goal, rename that account and keep going.
Long-Term Savings Accounts
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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ADDITIONAL RESOURCES WE LOVE!
- Nerdwallet – All things personal finance website
- The BURN Podcast – Ben Newman | Performance Development Coach
- Increase your impact Podcast – Justin Su’a | Leadership Coach
- Micro-Empires Podcast – Jennifer Grimson | Entrepreneur
- Good (Yves)ning Podcast – Yves Batoba Personal | Development Mentor
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