Sarah Li Cain
Contributing Writer at Tally
September 24, 2019
Saving money doesn’t need to be a chore. Really.
It can seem like a sacrifice, but savings goals are meant to benefit you. Maybe you want a new car or the flexibility to take a few days off work. If you prioritize saving money, your future self will thank you greatly.
Now, not every major life savings goal is relevant to you. If you don’t plan on having children, you needn’t worry about saving for their education. And maybe you have no desire to ever buy a house. All of these choices are perfectly acceptable!
Saving money is about preparation — for both the known and unknown. The way you feel today isn’t necessarily how you’ll feel 10 years from now. That’s why we compiled a list of major savings goals you can start working toward today.
No matter your life situation, an emergency fund is your best friend. It’s there for you to lean on when the unexpected happens: unplanned home repairs, job loss or even a medical emergency.
My family and I were driving around running errands one Sunday when the car started acting funny. Luckily, there was a mechanic a mile down the road who told us our transmission was on the fritz. That set us back $3,000, plus another $200 to rent a car while ours was in the shop.
If it wasn’t for my emergency fund, we would’ve had to rely on a credit card or personal loan. Not that I loved spending thousands of dollars on car repairs, but I would’ve been way more stressed out thinking about how I was going to pay the mechanic if it wasn’t for my emergency fund.
Debt sucks. There’s no doubt about that. But high-interest debt is one of the worst ones, as it can tie up a lot of your cash and force you to spend thousands of dollars more in your lifetime.
It may seem strange to think of it this way, but paying off high-interest debt is a form of saving money. The faster you get rid of it, the more money you save!
For example, if you have a 5% car loan and there’s no prepayment penalty, paying it off early means you can own your car sooner and pay less in interest.
Once you’re debt-free (or at least close to it), you can use that money you would have paid toward your loans for something else — your weekly manicure habit, maybe a Disney vacation or even your next home.
A sinking fund is similar to an emergency fund. You set aside money for expenses, except this is for the ones you’ve planned.
For example, if you’re planning to spend money on gifts during the holiday season, the sinking fund is where you set aside your money until you need it. Or maybe you have irregular bills, like semi-annual insurance premiums or property taxes; the sinking fund means you know you’ll have the money ready instead of scrambling at the last minute.
Saving for a sinking fund is as simple as figuring out your budget and dividing that by the number of months before you need the money. Let’s say your car insurance bill is $800. If the bill is due in 8 months, your goal should be to save $100 each month in a separate savings account.
Buying a home is a major upfront investment. Between closing costs, buying new furniture and a down payment, you’re going to need tens of thousands of dollars before you even move into your new place.
Aside from it being the “American Dream,” buying a house is a popular item on a lot of people’s wish list and, in many cases, it can be cheaper in the long run. If that’s you, setting aside cash is a pretty major savings goal.
To figure out how much you need to save, look at how much homes cost in your area and calculate 20% of the asking price. That’s typically what many recommend you have for a down payment. And don’t forget closing costs! They can be up to 5% of a home’s purchase price.
No matter how many years off it is, make sure you don’t forget your golden years!
Yes, it may seem far away, especially when all you can think about is paying down debt. But stashing money away for older, future self is definitely important. And this is especially true if you want to maintain your current standard of living, while also being able to afford other things like more travel or hobbies.
Many employers offer some sort of retirement plan and may match up to a certain percentage of your contributions. Even if you start setting a small amount now, it’s better than nothing.
If you have children, the topic of college has undoubtedly come up at least once. You probably already know it’s expensive. And tuition isn’t going down anytime soon.
Saving for your child’s college is often a good idea. But if you decide you want to contribute, it’s also a good idea to make sure you’ve already taken care of your own needs.
As for what types of accounts are best, a high-interest savings account can work if your child will go to college within a few years. You can also consider a 529 plan if your child is relatively young. A 529 account generally lets you grow your contributions tax-free, and if the money is used for qualified educational expenses, you won’t need to pay taxes on those either.
Look for ways to let money enhance your life, not hinder it.
While saving your money can seem like deprivation, it’s ultimately going to help you achieve your life goals. Once you see all that money in your account and know that you’ve got your bases covered for your dream home or in case of an emergency, it’s one of the best feelings in the world.