Identify Savings and Investing Goals

Financial Freedom in 2021! Take Action: Day 3

You’ve set your priorities, but how much money will each require? And how much more must you set aside for emergencies and retirement on top of amounts saved for the fun stuff?

According to the top names in personal finance, setting up an emergency fund is first on the list. What’s that number for you? Research shows that nearly half of Americans would not be able to cover a $400 emergency without using credit cards. Because of this data, many experts recommend having cash saved up and accessible in the amount of 3-6 months of expenses. During these uncertain economic times, many are saying to double that number.

However, in episode #153 of the How To Money Podcast (pre-pandemic), hosts Joel and Matt revealed that $2,467 is the specific number to shoot for according to some economists. Only you can determine what your emergency fund comfort level is. Take into consideration the following personal situations that may have an additional effect on it: family member in declining health, an older vehicle, an unimproved home around 15-20 years old, and/or desire for a career change or business start-up.

Whatever your number is, strive to reach it as quickly as possible. Priorities, goals, and dreams may become distant memories if a financial emergency thwarts your personal progress.

After identifying your target for an emergency fund, decide how much money to set aside for your other top priorities this year. Here’s an example of how to determine what to budget for a specific purpose:

  • Priority: Early Retirement (by age 50)
  • Goal: Contribute $24,000 to investment accounts in addition to 401K investing
  • Deadline: Dec 31, 2021
  • Frequency of Contributions: Max out Roth IRA’s by Feb 28th and then contribute monthly to brokerage account
  • Necessary funds: $6000 in Jan, $6000 in Feb, and then $12,000 from March through Dec ($12,000/10 = $1,000/month)

Take some time today to place a total dollar amount and a deadline next to each of the top priorities you listed yesterday. (If you don’t already have a sufficient emergency fund, you might want to determine an amount that’s comfortable for you and add that to the list.) Prepare to include these totals in an annual budget, and as the month goes on, I’ll share a few ways I was able to increase our family’s savings rate from a negative percentage to about 30%, in addition to what we budget for travel, family traditions, tithing, tuition, and gifting.

AMP UP Your Savings

7 Proven Ways to Increase Your Savings Rate

Savings rate? Who keeps up with that? We have so many expenses, not only the basics but also the high expectations of what a “good life” should look like. Is there anything left to put aside for saving or investing?

There has to be! Every personal finance expert out there will tell you that you need an emergency fund, preferable equal to 3-6 months of monthly expenses, accessible at all times. They also recommend investing for your future at a higher rate than you’d probably think possible. All in all, it seems we should be aiming for a savings rate of at least 25% of our gross monthly income, setting some aside for emergencies, some for retirement investing, and a little extra for living a full life. This requires motivation and dedication. I propose the route of immaturity to get you started. 😉

Do you know that awful song that kids sing about a watery substance that most people don’t like to speak of? The lyrics start like this, “When you’re sliding into first, and you feel your britches burst, ______, _______.”

My older two kids have taken to singing this song more often than I’d like. To prevent my younger two from adding it to their favorite song list, I sing over them and change the lyrics:

“If you really want a jeep when you reach age sixteen, save your money! Save your money! If you really want a scooter that has a fast motor, save your money, save your money!”

This song can work for adulting wants and needs as well…

“If you need a gorgeous beach to escape a tough week, save your money! Save your money! If the truck keeps breaking down every time you’re in town, save your money! Save your money!”

Go ahead, make up your own lyrics. It’s pretty catchy. And then when you’re done, check out some of these more serious ways to motivate you to amp up your savings.

1. Name your accounts.

I read about this idea in one of my favorite mindset books, Atomic Habits by James Clear. Try adding an emotional connection to your accounts by giving each a name, like “Ditch the Clunker” if saving for a new-to-you car, “Oh No, Not Now” if growing your emergency fund, or “Escape Rona” if saving for an epic vacay when we’re free of the Covid. This might motivate you to keep adding to these accounts.

2. Reward yourself … often.

Every time you make a frugal decision over a splurge, such as cooking on a Friday night or driving past the very enticing shaved ice truck, reward yourself with $5 or $10 in one of the above funds.

Reward yourself every time you make a good frugal choice, including skipping that delicious shaved ice.

3. Move from debt-free to saving big.

After you pay off a debt, take the amount of money you were putting toward that debt each month and put it into savings instead of spending any part of it. (You already adjusted to not having that money to spend anyway.)

4. Wait … and wait … and wait.

Wait 24, or even 48, hours before making a “want” purchase. If you decide after that 24 hours not to buy it after all, reward yourself by putting the amount of the purchase in one of your savings accounts to go toward something more meaningful.

Set it and forget it. Saving can be easy and fun.

5. Set it and forget it.

I’m not sure who coined this phrase, but it works! You can create your own catchy phrase to force yourself to transfer a set amount of money from checking to savings each paycheck. Maybe “Automate my savings rate!” or “Conquer the transfer!” However you refer to the practice, repeat it in your mind until you just do it.

6. Shop around.

Find the best APY so that the money you save will work for you. Check out Nerd Wallet’s list of online savings accounts to make an informed decision. If you’re looking to invest the extra savings, JL Collin’s Stock Series has excellent advice about where to put your cash depending on your goals.

7. Keep the change, ya filthy animal

Try out a program such as Acorns or through your local bank that will automatically round up your purchases to the next dollar and deposit the difference (the change) into your savings or investment account.

Increase your savings a little bit at a time.

These tactics tend to work for me so that I am continually finding ways to increase our savings rate. However, we have plenty of setbacks too, and when those happen, it helps to draw on a little bit of humor to get back on track.

What works for your family?