Should You Always Know What You're Saving For?

Not having financial goals can lead to poor money management choices. When you don't have something specific in mind to save for, it's easy to slip into the mindset that it doesn't matter how you spend your money - each choice seems as good as any other. The result can be undirected spending on things you don't need or that won't matter soon after you get them home. In general, it's smart to have savings goals. Here's how to identify goals and reach them.

Visualize Financial Goals

Knowing what you're working towards can be a powerful motivator. Being able to visualize what achieving that goal would feel like can help. For example, if your goal is to replace your aging car, visualize driving to work in comfort, or not having to take your car to a mechanic all the time to keep it running. If your goal is a week-long vacation at the beach, think about the sound of the surf and the sight of your kids digging in the sand. Some people find it helpful to post visual reminders of these goals where they'll be seen frequently. You could, for example, use a photo of the car you want to buy as your computer wallpaper.

Describe Your Goal Using Specifics

Julia Belyavsky Bayuk, assistant professor at the University of Delaware's Department of Business Administration, suggests using the acronym SMART when defining your goals. SMART stands for

  • Specific
  • Measurable
  • Attainable
  • Relevant
  • Time-limited

By defining your goals in these terms, you make them easier to visualize and make achieving them into a more realistic process.

Make Your Goals the Right Size

When your goals are too easy, you achieve them and are done, without much of a sense of accomplishment. While small goals may be a good starting place, to show yourself you're capable of reaching goals, you should prepare to move on to bigger goals. On the other hand, if you set goals that are overly ambitious, you're more likely to give up before reaching them. Your savings goals should be challenging, but not impossible.

Next step: Sign up for Mint and easily track your progress toward financial goals.

Steps for Setting and Achieving Financial Goals

Forum Credit Union suggests a three-step process for reaching your financial goals. Step one is establishing your goal and determining how much time you'll need to reach it. Determining the time frame is simple for some goals, like saving for a vacation this year, but time frames can be less obvious with other goals, like saving for the down payment on a house. For your longest-term goals, like saving for retirement, you might consider working with a certified financial planner for timeline advice.

The next step is critical: figuring out exactly how you're going to achieve your goal. For most people the best way to do this is to look at the monthly budget and determine where the money to reach the goal will come from. If, for example, you're not able to save as much as you want toward your goal every month, you should look for areas in your budget where you can scale back. Could you cut back on restaurant meals or entertainment? You may want to consider opening a savings account and having money directly deposited from every paycheck specifically for reaching your goal.

The final step in reaching your financial goal is maintaining consistency and accountability. Accept that you'll face temptations to slack off or splurge on other things, but understand how doing so will prevent you from reaching your goal. Staying accountable is easier if you review your savings regularly to track your progress. Some people find that sharing their goal with a close friend or relative and asking them to inquire about progress regularly can help with accountability.

Two Primary Goals that Apply to Everyone

If you're not sure what your savings goals should be, there are two savings goals that apply to everyone. First is saving for your emergency fund. This is a savings account that's available for you to tap into in the event of an emergency. Aim for three to six months' worth of living expenses in this account. This is the account you would use if, for example, you lost your job, or ended up in the hospital with a large co-pay to cover.

The second goal that everyone should have is saving and investing for retirement. This is true even if you're in your early twenties and fresh out of college. The younger you are when you start saving, the more you'll get from every dollar you invest in your retirement. If you have children, saving for their education is important, but saving for retirement is more important. You can't get scholarships for retirement, but your kids can get scholarships, grants, and loans for college.

Know what you're saving for, visualize, define, and plan for those goals. Hold yourself accountable and track your progress using great tools like Mint, and you can achieve more than you imagine.

Next step: Sign up for Mint and easily track your progress toward financial goals.