How to create a savings goal
Creating a savings goal comes down to three things: you need to know what you want, you need an income, and you need to control your expenses. This is easy enough to grasp, but in practice, it’s sometimes difficult to stay on the straight and narrow.
Indeed, plenty of Aussies find it very difficult to follow through on their savings goals. When asked by MoneySmart.gov.au, regular Aussies who were trying to save money were classified into one of four groups.
- Slow & steady (37%). These respondents regularly saved small amounts of money, so that one day they’d reach their savings goals.
- Fast & determined (28%). These Aussies were quite different to the first group: aiming to reach their goal as fast as they could.
- Hit & miss (24%). Some people have the best of intentions to reach their goals, but this group struggled to consistently save long term.
- Dreamer (11%). These Aussies planned ahead and set savings goals for themselves, but haven’t made immediate plans to achieve those goals.
You should aspire to be part of either the fast and furious or the slow and steady savers, as their differences lay chiefly in how quickly you need to save. The important thing is to start, and follow through.
What will help you save is a framework to work within. We’re going to describe it below.
1. Define what you want
It’s time to unlock your motivation to save. So, what do you want? Even if it sounds silly or unattainable, what is it that you want? Whether it’s big or small, your goals should be SMART. Make them specific, measurable, attainable, relevant, and timely.
For many Australians the dream of owning a home is their go to goal.
- ‘I want to buy a house in the next three years, with a mortgage deposit of more than 35% of the home’s value.’
Perhaps you want to learn how to cook.
- ‘I want to undertake studies in the culinary arts within the year, so that I can make my significant other their favourite meal. The course I want to undertake costs $60 per week, running for 12 weeks.’
Try it yourself. Tell your Twitter fans what you’re saving for!
It can be as grand or as small as you’d like, so long as it’s something you can write down. If you’re a ‘dreamer’, you may have spent a lot of time defining what you want, but not a lot of time figuring out how to reach those goals! That’s what step two is all about.
2. Look at what your earn/what you owe (i.e. create a budget)
Now that you’ve defined what you want, it’s time to figure out how you should go about achieving that goal. Everyone’s circumstances are different…but not that different.
Here is what you need to prioritise, in this order.
If you lack the available funds to make meaningful progress towards your savings goal, then it is time to look at your level of debt. One of the smart things you can do is consolidate your debt. If you have multiple credit cards, move the amount you owe on all your credit cards to a single place, so you have one amount of debt left to pay. Seek advice from a financial expert to learn more about this, and compare credit cards on our site to find a better value product for yourself.
Once your level of debt has been reduced to acceptable levels and you have room to comfortably save, it’s time to turbo-charge your savings.
- Make meals at home. Need help figuring out what to cook? Just ask StayAtHomeMum. It’s a great resource for finding budget-friendly recipes for nearly every occasion (we’re big fans of the cakes section!).
- Grow your own vegetables! Spring onions can be regrown from the stalks you wouldn’t typically use, by simply putting them in a glass jar with some water. If you’re keen to learn more, you can start growing your own garden with this beginners guide from HomeLife.
- Have people over instead of going out. Hitting the town and painting it red is all good and well, but it can cost you an arm and a leg if you do it often enough. Foodi offers some great direction on how you can host the perfect dinner party, which will help you get back in touch with your mates, and save you cash along the way.
- Spending less on electricity? Invest in more energy-efficient appliances, improve the insulation in your home, or switch power providers to a better value deal.
- Only upgrade your technology when needed. You’d be surprised at how good new video games look on an old black and white TV. When you do seriously need to upgrade though, there’s plenty of information available for budget friendly options available to you, such as this Lifehacker piece on the best budget smartphone.
- Drop how you shop (e.g. fashion accessories, clothes etc.). Op shopping may be your saving grace here, and Otter go through the steps in their blog to show you how to become a master at it.
- Exercise for free. Explore your neighbourhood on foot, go swim at beach, and so on and so forth. If you want something more specific, here’s a high intensity interval training workout video that only requires you have access to the internet.
- Get entertained for free. Movies, TV shows, music, games, books – all can be found for free (remember libraries?)
At this point, it’s a smart idea to create a budget for yourself, so you know exactly how much money you could afford to save each week.
3. Re-establish a timeframe, and set yourself some micro-goals
Set yourself a timeframe in which you can complete this goal. You would have outlined this timeframe in your goal statement earlier, but you’ll have a better idea now if this timeframe is realistic.
Once this is done, set yourself some smaller goals to hit along your journey. That way, you’ll experience small moments of success when you reach these milestones, which should incentivise you to keep moving forward with your plan.
4. Automate your savings
Sure, you could micromanage your savings by doing funds transfers every week. But there is a significant upside to automating your savings activity: using direct debit helps you avoid moments of weakness. If you make it difficult to extract your savings (e.g. you have different bank accounts with different financial institutions), you’ll be less inclined to sabotage your savings by splurging. This helps anyone who belongs to the ‘hit or miss’ crowd buck their tendency to shoot themselves in the foot.
One thing you can automate is a 10% deposit into your savings as soon as you’re paid. That way, you’re guaranteed to save at least a little each pay cycle, and you can always go back after you’ve sorted out your bills to add more to the piggy bank.
— Amy White (@amysdailyliving) June 1, 2016
5. Track and optimise savings as your circumstances change
Measurement of your progress will galvanize your resolve to keeps saving, and act as an early warning system if you’re falling off the wagon. Whether it’s a spreadsheet, a notebook, or an app like Pocketbook – keep track of your savings, and make sure you’re hitting the goals on the days you designate.
What happens if you miss a goal?
Don’t sweat it too much. It does no one any good to beat yourself up about missed goals. Things change (e.g. income, surprise expenses), so your timeframe is bound to move around a little. Tracking these bumps in the road and responding to them quickly is what this step is all about.
6. Don’t stop at one savings goal – be ambitious!
You could put all your eggs in one basket and save for a single thing, but everyone should aspire to more than one goal. Saving for a home? Make sure you put some money aside for the renovations! Putting money away for the kid’s high school fund? Pocket some for you and your partner’s 10 year anniversary as well!
Because once you achieve your goal, you should make the next one bigger and better than the last.