Saving money sounds simple – setting money aside for a future goal – but in reality, people are often faced with competing savings priorities. We want it all: the trip, the house, the flush savings account. So how do you decide which savings goals to focus on, especially when we’re aiming for so many things at once?
“You’re also trying to live and have fun and not eat ramen noodles every day,” says Al-Nesha Jones, CPA and founder of ASE Group, an accounting, tax and consulting firm. full-service at West Orange. , New Jersey. Saving is further complicated by the fact that we are currently facing economic uncertainty, rising prices for everyday items and a tumultuous stock market.
Determining your savings priorities isn’t easy, but these strategies can serve as guideposts:
Put Your Emergency Fund First
Think about how it felt the last time you couldn’t cover an emergency, Jones says. “If this has caused you major anxiety, keep that feeling in mind when prioritizing.” In other words, create your emergency fund above all, because it is so essential to financial security.
“Now more than ever, people understand the importance of a rainy day fund,” says Eric Maldonado, certified financial planner and owner of Aquila Wealth Advisors in San Luis Obispo, Calif. “It’s a good base to have some cash in case things start to cost more.”
Next, prioritize retirement
“Retirement is a long-term game and time is on your side, so even if you start out with something very small, the more time you give yourself to work on it, the better off you’ll be,” Jones says. “If you keep putting off the retreat, we blink and now we’re struggling.”
Thinking about the worst-case scenarios of not saving for different goals can help highlight the importance of funding retirement accounts. Noah Damsky, director of Marina Wealth Advisors in Los Angeles, says you should save for the categories with the most serious consequences first — and retirement tops the list, because no one wants to be impoverished in old age. “Running these scenarios helps crystallize what’s important,” says Damsky.
Decide what you want in the short term
This next category of savings priorities is complicated, because you have to determine your short-term goals. It can be buying a house, traveling, moving to a new city, starting a family or something else.
Dale L. Shafer II, CFP and founder of Life Moves Wealth Management in Scottsdale, Arizona, recently moved his family to this area of Michigan, and his short-term goal is to save up to buy a house there. The pandemic has prompted many people to make major lifestyle changes, he says, and as a result, their short-term savings goals have changed.
“Sometimes we reset expectations and sometimes we get more than we thought,” he says. It is important to check the evolution of your savings at least several times a year in order to be able to recalibrate if necessary.
Jay Zigmont, CFP and founder of Childfree Wealth in Water Valley, Mississippi, works with clients who do not have and do not plan to have children. He says many of them are focusing on major life changes, such as starting a business, moving abroad, traveling or taking a sabbatical from work.
“You might not be able to do everything at once, but you can do most things over time,” Zigmont says.
To keep all of these goals straight, Maldonado suggests opening a separate savings account for each and giving it a nickname, such as “Greece, $5,000” or “Lake cabin rental, $1,500.”
On line, high yield savings accounts tend to offer higher returns than traditional banks, and you can set up automatic deductions from your checking account or paycheck. “It’s the positive inertia that allows the money to go where you want it to go,” he adds.
You can always make changes later. “Just get into the habit of saving, and then you can go back and add more goals,” Jones says.
Enjoy life along the way
As important as it is to save for all of these priorities, it’s equally important to enjoy life today. Don’t wait until you have a fully funded retirement to invest in items that bring you joy, warns Jones. That’s why she’s saving up to buy a Tesla, which she hopes to buy by the end of the year.
Maldonado and his wife contribute a fixed portion of the money to a family account. “We empty it every quarter. It’s a guilt-free expense for the family,” he says, and goes toward things like camping trips, museums, or parties. With their savings safely stored in other accounts, it’s an expense the whole family can feel good about.
This article was written by NerdWallet and was originally published by Associated Press. The content is for educational and informational purposes and does not constitute investment advice.
More from NerdWallet
Kimberly Palmer writes for NerdWallet. Email: [email protected] Twitter: @kimberlypalmer.
The article How to Strike a Happy Balance Between Competing Savings Goals originally appeared on NerdWallet.