8 steps to hit your savings goals.
Fidelity Smart Money
Key takeaways
- Saving money is key to reaching almost any financial goal.
- To save more, start by identifying your current income and expenses.
- Set specific, realistic savings goals, and plan to hit them by cutting costs or increasing your income.
Sometimes it can be hard to figure out the best way to save money. These steps can help you cut through the financial noise in your life and start to save money, whether it's for a short-term goal, like a vacation, or a longer-term one, like paying for a child's education, or your retirement.
Feed your brain. Fund your future.
Subscribe now
1. Take your financial temperature
Knowing what comes in and what goes out of your bank account every month is the first step in saving money. If you haven't already—or it's been a while—sit down with your paystubs and bills for the month. This will give you the chance to see how much you're spending on essentials (think: housing costs, groceries, insurance, debt repayment) versus what you pay for nice-to-haves, like eating out or entertainment.
The second category of expenses (the nice-to-have catagory) is particularly important to review, as they are typically easiest to cut to help increase your savings. But you can save on essentials too with more effort, such as downsizing your housing or zeroing out high-interest debt. (See our full list of tips and tricks in step 6.)
You'll also want to keep track of what you're already saving, whether it's for an emergency fund, retirement, or other goals.
2. Decide on a budget
The dreaded B word. While many people dislike micromanaging their finances, anyone who wants to save money must mind their budget. If you don't have a budget that works for you, it's time to find one. Fidelity's suggests following the 50/15/5 rule, which means allotting 50% of your income for necessary expenses, 15% for retirement (including employer match), and 5% for short-term savings, like an emergency fund. You're free to spend the remaining amount on whatever you'd like, including other financial goals.
3. Name and price your savings goals
Next, figure out what you're asking for, how much you want to save, and when you need the money. When it comes to setting and achieving goals, psychology tells us it's helpful to be as specific and concrete as possible.1 For example, you're more likely to reach a goal of saving $2,000 for a trip to Tulum in a year than you are to reach one that is simply "save money." The latter may feel overly vague and without any concrete end, which can make it harder to work toward.
Similarly, aim to keep your savings goals ambitious but not unrealistic. That doesn't mean you can't tackle big-ticket items, but you may want to break your biggest ones into subgoals that you can more easily accomplish within a shorter time frame.
For instance, instead of setting the goal of saving $100,000 for a child's college fund, which can feel overwhelming, you might instead set a goal to save about $500 a month. After consistently saving for 18 years, you could have $108,000 ($500 × 12 months × 18 years)—and many mini victories under your belt. This may help keep you more motivated than you'd feel slowly chipping away at a massive balance.
Once you settle on your savings targets, you can build these into your budget to chart a course to reaching them.
4. Be intentional about your accounts and investments
Some people may find it helpful to bucket their savings—or set up separate accounts for each savings goal. For example, you may be more motivated to keep saving when you see the balance of your vacation fund inching toward your ultimate goal each month. Separating your savings from your checking account could also keep you from "accidentally" spending the money on something else and derailing your progress.
Having separate accounts for your savings goals also allows you to pick a variety of accounts for your specific goal or timeline. For short-term goals—those you plan to accomplish within 3 years—you may want to stick with cash held in checking, regular savings, or high-yield savings accounts and cash-like investments, such as certificates of deposit (CDs) or money market funds.
For savings goals that are further out, you can consider holding a portion of your savings in investment accounts based on your timeline and willingness to take on risk. Generally, the longer you have until your deadline, the more risk you may feel comfortable taking on as your investments have more time to potentially recover from losses. If you aren't sure what the right split is for you, consider reaching out to a financial professional.
5. Automate your savings
With all the other things on your money to-do list, it can be easy to let savings fall through the cracks. Enter: automation.
Based on your other financial goals and commitments, determine how much you want to allocate to savings each month and set up an automatic transfer from your checking account to each savings account you've set up. Another option is to check whether your employer lets you set up multiple direct deposits, so that some money can funnel straight to your savings. Out of sight, out of mind—and out of your wallet.
6. Check out our top ways to save
You don't have to be an extreme couponer to hit your savings goals. (But if that's your thing, go for it.) Check out ways to save more money in our collection of articles:
- How to spend less money
- How to spend less on gas
- How to save money on travel
- How to lower your utility bills
- How to spend less on groceries
7. Level up your income
While you might find it easy to eliminate your more lavish spending habits, you'll probably reach a point where you can't cut away any more. That's when it's time to consider raising your income. You may think about supplementing with a side gig or exploring passive income opportunities. And if it's been a while since your last raise at work, it may be time to negotiate for what you're worth.
8. Track your progress
Reaching a savings goal usually doesn't happen overnight. You'll want to check in on your progress regularly to make sure you're staying on track, and assess how new developments in your personal and financial life may impact you moving forward.
Insights, advice, suggestions, feedback and comments from experts
As an expert and enthusiast, I can provide information and insights on a wide range of topics, including personal finance and savings goals. While I have access to the specific article you mentioned, I can provide general guidance based on the concepts mentioned in the article. Here are the key concepts related to hitting savings goals:
1. Take your financial temperature
To save money effectively, it's important to have a clear understanding of your income and expenses. Take the time to review your paystubs and bills to see how much you're spending on essential items versus discretionary expenses. This will help you identify areas where you can potentially cut costs and increase your savings.
2. Decide on a budget
Creating a budget is essential for saving money. Fidelity suggests following the 50/15/5 rule, which involves allocating 50% of your income for necessary expenses, 15% for retirement (including employer match), and 5% for short-term savings like an emergency fund. The remaining amount can be used for other financial goals or discretionary spending.
3. Name and price your savings goals
Setting specific and concrete savings goals is important for staying motivated and focused. Determine what you want to save for, how much you need to save, and when you need the money. Breaking down larger goals into smaller sub-goals can make them more achievable and help you track your progress along the way.
4. Be intentional about your accounts and investments
Consider setting up separate accounts for each savings goal to track your progress more effectively. For short-term goals (within 3 years), cash-based accounts like checking, regular savings, or high-yield savings accounts are suitable. For longer-term goals, you may want to consider investment accounts based on your timeline and risk tolerance. It's always a good idea to consult a financial professional if you're unsure about the right approach.
5. Automate your savings
Automating your savings can help you stay consistent and avoid forgetting to save. Determine how much you want to save each month and set up automatic transfers from your checking account to your savings accounts. Some employers also allow for multiple direct deposits, which can make saving even easier.
6. Check out ways to save
Explore different strategies and tips for saving money. There are various articles available that provide advice on spending less money, saving on specific expenses like gas or travel, and reducing utility bills. These resources can help you find additional ways to save and reach your goals.
7. Level up your income
If you've reached a point where cutting expenses is no longer feasible, consider ways to increase your income. This could involve taking on a side gig, exploring passive income opportunities, or negotiating for a raise at work.
8. Track your progress
Regularly monitor your progress towards your savings goals. Assess any changes in your personal or financial situation that may impact your savings plan. By staying on track and making adjustments as needed, you can increase your chances of reaching your goals.
Please note that the information provided above is a general overview based on the concepts commonly associated with hitting savings goals. For more specific and personalized advice, it's always recommended to consult with a financial professional.
