Saving money for a long term goal is a pretty large responsibility. Whether you want to save for a house, car, wedding, college fund, or some other expensive item, chances are you don’t have that kind of money laying around in your bank account.
This is where the importance of saving for a long term goal comes in.
In order to be able to live a fun and responsible life while actively working toward your financial goals, the establishment of a long term savings account is a great way to successfully ‘adult’.
Here are some tips on how to establish a successful and achievable way to save money for a long term goal.
Establish a Good Savings Account
Chances are you already have a savings account with your bank, but is it the best savings account you can have? To effectively and efficiently save for a long term goal, the type of savings account you have matters.
Most popular banks offer only about a .01 percent interest rate on savings accounts. This means that you earn maybe 1 or 2 cents a month for keeping your money in that savings account.
Instead of using a traditional bank for your savings, look into credit unions or other savings accounts that offer better interest rates. Since your money will be sitting in the account for a while, it might as well grow as much as possible.
It’s also completely fine to have two different savings accounts. I personally have two savings accounts. One is for my short term saving goals such as school tuition fees & emergencies and the other is for a house down payment, which is a long term goal of mine. I never touch my house savings fund and I only touch my other account when I have to pay my tuition or if there is an emergency.
Basically, one account is dedicated to my short term goals and the other is strictly for long term goals.
Whatever you do, remember that this money is not meant to be touched. That’s what your checking account is for.
Establish an Emergency Fund
If you haven’t already done so, get yourself set up with an emergency fund and start putting money into that each month.
Emergency funds are vital. In a way, an emergency fund is a special savings account because it holds money until you need it for an emergency.
A popular rule of thumb is to have at least enough money saved to cover up to 6 months of you and your family’s entire living expenses.
If you have an established emergency fund and something happens such as a family emergency or an important appliance breaks in your home, you won’t need to touch your long term savings because the money is already there.
An emergency fund also helps you sleep better at night knowing that if money gets a little tight, there are still finances set aside just in case.
Know How Long You Want to Save
Since you’re saving for a long term goal, you’ll most likely not need to touch this savings account for years to come.
However, most long term goals do have an end date. If you are building a college fund for your children, you know that you’ll have around 18 or so years to save. If you are saving for something like a house or a car, that could be 5-10 years of savings.
Everyone is different and may need to save for a longer or shorter period of time to reach their long term savings goal.
Decide how much time you want to give yourself to reach your goal and actively work towards the date you set for yourself.
Create Short Term Saving Goals
Once you establish how much money you want to save up, break that big goal down.
For example, if you want to save $50,000 in the next 10 years, do some simple math to determine how much money you need to set aside each month in order to meet your goal.
An easy way to do this is to divide your total number by the number of years you want to save: 50,000/10 = 5,000
Once you have the yearly amount, divide that by 12 months: 5,000/12 = 416
Once you come to the final number you should be setting aside monthly, decide if that amount is comfortable enough for you.
It’s okay to make adjustments to your long term savings goal. If you need to make a tweak here or there, now is the perfect time to take care of it.
It is counterproductive to set aside more money than you make or an amount that will leave you with no money to spare. Be honest about exactly how much money you can actually afford to put into the bank.
We all have bills that need to be paid and groceries that need to be purchased. Don’t jeopardize those necessities by dedicating to save an amount that will threaten your livelihood.
This is why it’s good to sit down and really evaluate your monthly income, bills, and basic spending habits. Once you do this it will be easier to come to a solid number you can set aside each month.
Remember, it’s okay if you need to make tweaks to your long term savings goal so that you and your family can live comfortably while still working toward your financial goals.
Recommended: 6 Easy Steps to Save Money for the Future
If you put away money here and there when you feel like it, that needs to change. Depositing money into your savings account needs to become a habit every single time you get paid.
If you think it’s too difficult to remember to deposit money into your savings, schedule a monthly direct deposit from your paycheck or your checking account into your savings account. Direct deposit makes saving money a no-brainer.
Simply decide how much money you want to be deposited into your savings and ask your bank to make automatic transfers every month. This method will grow your account in no time and is an easy way to save money for the future.
Tip. Save your extra income
If you have a really good month financially, don’t spend the extra money, save it! Extra income is an awesome chance to reach your financial goals sooner, but it only works if you use it wisely.
Don’t Get Distracted
Make saving for your long term goal a way of life.
Once it becomes a habit for you to set aside money every month, let the process continue to happen without any interruptions. This means you shouldn’t be touching your account until you meet your goal.
If you have an emergency fund created, this will help you not have to reach into the account.
Also, once you actually have a good amount of money in the account, it can be tempting to use that money for something else. Don’t allow the success for your savings journey distract you from the reason you started your long term savings in the first place.
If you feel too tempted to touch the money or you want to use it for something else, it might be good to start another account for a long or short term savings goal.
Enjoy the Process
Don’t obsess over the savings journey.
We already established that it will take years to reach your goal. If you have everything organized, automated, and working for you, allow yourself to sit back and enjoy the process.
Eventually, you will reach your goal and be able to make your large purchase.
In the end, it will all have been completely worth it.
Saving money is a process that doesn’t happen overnight. But, if you do it properly you will achieve your goals without going into crazy amounts of debt.
With focus and dedication, you will achieve your mission in savings for a long term goal.
Best of luck to you!