There are several financial dreams I hold onto. One is that I will, one day, be debt-free and balanced at zero, even if only for an hour. Another is that I will be able to save for something big and actually attain the goal in a reasonably predictable time frame. So what is it that is preventing me from attaining these goals? Simply put, I don’t know how to manage multiple financial goals at once. Just the fact that I have managed to maintain a savings account that is separate from my revolving-door chequing account—and actually has steadily been on the right side of zero for some time! —is a huge accomplishment for me.
I really thought I had mastered the whole idea of “savings” last spring when I set a financial goal to take a trip, and, within a month of that trip, and far surpassed my savings goal. In fact, I was actually tossing around the possibility of buying a sorely needed new laptop with the extra dough I had in my ample savings. (Granted, as a writer, a new laptop should perhaps have topped a party trip to Montreal in my list of goals, but Rome wasn’t built in a day. Also, as you shall see, the point proved moot.) High on my newfound savings prowess, Fate, seeing my pride, stepped in and dealt me a blow. Okay, several blows, all of them related to my car (which had been surprisingly non-problematic for some time). Several pricey car repairs (and a couple of speeding tickets) later, my ample nest eggs was wiped out, leaving me with a ticket to Montreal, and a half of a paycheque to splurge on my trip.
It occurred to me that, though my saving capacity had grown in leaps and bounds, there was still something I wasn’t understanding about the concept of saving, and planning for catastrophes such as that which befell me. It wasn’t lost on me that one friend I went with, who was the sole bread-winner for her young family while her husband went back to school for a year, was able to not only afford the trip, but managed to incorporate a huge shopping budget. What did she know that I didn’t?
With a little research, I am slightly closer to understanding this nebulous concept that is “savings” and am ready to start planning for my multiple savings goals.
Identify Your Goals
The first step, when considering your financial “plan” is to sit down and figure out your goals. It is virtually impossible to reach a goal that you are not consciously aiming for. You might haphazardly manage a few fuzzy goals, but those will likely be based on surprise inheritances and perhaps a little jackpot in your lottery pool (by the way, winning the lottery: not a viable financial goal for reasons that will soon become apparent).
It is important to be as specific as possible when outlining your goals. Just because you write down all that you would whimsically enjoy attaining does not, then, make them tangible, or reachable, goals. You need to be realistic about how much you can spare to squirrel away each month, as well as be specific about the time frames for your goals.
In order to figure out what you can manage, we should assume that you have, or are prepared to develop, a budget that outlines how much money you have coming in, and how much money is going out in monthly expenses (bills). Figure out your monthly allowance for food and entertainment, gas and necessities, and whatever is left is what you have to play with (don’t get discouraged yet!).
Once you have your budget in writing, divide up your savings goals into short-, medium- and long-term goals. Short term goals would be less than a year (saving for a car repair), medium would be 1 to 3 years (saving for a trip), and long term would be over 3 years (saving for retirement or a down payment on a house).
Once you have divvied these into categories, further focus your goals, in terms of a specific time units needed to attain the goals. Based on that, you will see how much money each month you can afford to put toward your goals, and how that money should be divided up.
Short-term goals are going to be fairly easy to plan and manage. For long-term goals, such as saving for a down payment on a house or (especially) retirement planning, you may need to consult an expert. Saving for a house will involve not only saving for a down payment and related legal expenses, it will involve having a discretionary fund set up for incidentals that first year. In terms of your retirement goals, you will need to take into account your work pension plan, your partner’s retirement plan, and figure into that how much time you have to save. If trying to figure that out makes you want to crawl under your covers until retirement, your best bet is to talk to someone at your bank, or a financial advisor, who actually knows what they are talking about.
Managing Your Savings
The first thing you need to get through your head is that your savings accounts are not just an elaborate network of back-up funds. Of course, if you have a financial emergency (last minute trips to Vegas don’t count!), then you have the money to deal with those. Better still, you could have an account that is JUST for such emergencies.
The best way to properly manage all of your goals is to have a different account for each of them. Keep a chequing account at your primary banking institution where you can have your paycheques deposited, and on payday, jump online and shift your funds into your various accounts. Online banking facilities (such as ING) are great places to keep your savings accounts for several reasons. Because these banks do not have the overhead that brick and mortar banks have, they often offer better interest rates for savings accounts. Some even offer sign-up bonuses for opening new accounts! Another great feature is that you can choose accounts that are not accessible through a bank machine (making them impervious to late-night ATM runs when you run out of drinking money!). You need 24 hours to release the funds in these banks, giving you time to consider your decision to do so.
Once you have figured out your savings goals and your monthly available income to put into savings, divide your savings up accordingly. If you can spare $400, divide it up amongst your different accounts. For example, you could contribute to a $150 to retirement account, $125 to a house account, $75 toward a trip account, $25 toward a car-repair account (more if you drive a beater like mine), and $25 toward a contingency fund.
If you are saving with your partner, each of you can contribute toward shared goals, while maintaining separate accounts for personal goals. Once you start saving, and that sense of impending financial doom that has always hung over you clears, you will be hooked. Remember to re-evaluate your goals fairly regularly to make sure you are on track, or any changes need to be made to your plan. And keep your filthy paws out of the honey pot until you have reached those goals.
