Having money goals is a great way to save for a short term goal.
Solid control over your finances makes purchasing your wants or needs a possibility. However, not everyone has enough money in the bank to make larger purchases.
This is where saving for a short term goal comes in handy.
While we live in a society that is credit card happy, it’s okay to not run out and charge every purchase we want or need. Sometimes it’s better to take some time and save up for a larger purchase.
By paying for a purchase in full you avoid unnecessary credit card charges and you’re assured that you can afford the purchase.
Here are 7 steps to set yourself up for success when saving money for a short term goal.
Have 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 short 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 just be sitting in the account for a while, might as well grow the income as much as possible.
Also, it’s completely fine to have two different savings accounts. I personally have two savings accounts. One is for school tuition fees & emergencies and the other is for a house down payment. 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.
A better way to look at this is to have one savings account for short term goals and another account for long term goals.
Whatever you do, remember that this money is not meant to be touched often. That’s what your checkings account is for.
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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 short 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.
Decide How Long You Need to Save
If you’re saving for a short term goal, you probably already know what purchase you want to make.
Since a short term goal is typically between 1 – 3 years, with 5 years being the max, it’s good to decide exactly how long you will need in order to save for your goal.
Once you know how many months or years you need, you can establish how much you need to save each month in order to make your deadline.
While having an end goal is good, it’s important to give yourself a bit of wiggle room. If you think you can have the money saved in 6 months, give yourself 7 months just in case there is a month or two where you may have fallen short.
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Establish Monthly Goals
If you need 9 months to save for a short term goal, establish the exact amount you need to set aside each month in order to make your goal.
If you only ever put aside money here and there when you remember, it will be extremely difficult and even impossible to meet your goal in the designated time frame.
Instead, be focused on your savings and dedicate the exact amount each month. This will assure your success and is a great habit to get into for your savings.
Don’t Overwhelm or Underwhelm Yourself
When setting a monthly amount to save for a short term goal, be realistic.
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.
It’s counterproductive to set a goal that is more money than you make or will leave you with no money to spare. Be honest with yourself about exactly how much money you can actually afford to put into the bank.
On the other hand, don’t save too little. While you are actively saving for a short term goal, you do want to challenge yourself a little bit. If you only set aside a few dollars when you could be setting aside a few hundred dollars, you are doing yourself a disservice.
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.
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 Shift Half Way Through
Be intentional about reaching the goal you initially set for yourself. Don’t allow yourself to get distracted halfway through and stop saving or touch your savings.
If you decide that you need more money, set another short term goal instead of getting frustrated with the one you currently have.
It’s such a huge accomplishment to see your initial goal through and succeed at reaching the amount you set.
If you are able to dedicate a specific amount each money and are true to your savings, you’ll have success in reaching your goal.