Saving money sounds simple – setting aside money for a future purpose, but in reality, people often face conflicting savings priorities. We want it all: the trip, the house, the wire current account. So how do we figure out which savings goals to put first, especially when we are working to achieve so many things at once?
“You’re still trying to live and enjoy and not eat ramen noodles every day,” says Al-Nesha Jones, a certified public accountant and founder of ASE Group, a full-service accounting, tax and consulting firm in West Orange, New Jersey. . Saving is further complicated by the fact that we are currently facing economic uncertainty, higher prices for everyday items and a tumultuous stock market.
Understanding your savings priorities isn’t easy, but these strategies can serve as guidelines:
Put your emergency fund first
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Consider how you felt the last time you couldn’t cover an emergency, says Jones. “If it gave you great anxiety, keep that feeling in mind when you prioritize.” In other words, create your emergency fund first, because it is critical to financial security.
“Now more than ever, people understand the importance of a rainy day fund,” says Eric Maldonado, certified financial planner and owner of Aquila Wealth Advisors in San Luis Obispo, California. “It is vital to have cash in case things start to cost more.”
So, prioritize retirement
“Retirement is a long-term game and time is on your side, so even if you start with something very small, the more time you spend working on it, the better off you will be,” says Jones. “If you keep putting off retirement, we blink and now we are climbing.”
Thinking of the worst-case scenarios of not saving for different goals can help emphasize the importance of funding retirement accounts. Noah Damsky, principal of Marina Wealth Advisors in Los Angeles, says you should first save for the categories with the most serious consequences – and retirement tops the list, since no one wants to be impoverished in old age. “Running these scenarios helps crystallize what’s important,” says Damsky.
Decide what you want in the short term
This next category of savings priorities is tricky, as you need to determine your short-term goals. They could include buying a home, traveling, moving to a new city, starting a family, or something else.
Dale L. Shafer II, CFP and founder of Life Moves Wealth Management in Scottsdale, Arizona, recently moved with his family to that area from Michigan, and his short-term goal is to save money to buy a home there. . The pandemic has prompted many people to make major lifestyle changes, he says, and their short-term savings goals have changed as a result.
“Sometimes we restore expectations and sometimes we get more than we thought,” he says. It is important to check the progress of your savings at least several times a year so that you can recalibrate when necessary.
Jay Zigmont, CFP and founder of Childfree Wealth in Water Valley, Mississippi, works with clients who do not have and do not plan to have children. He says many of them are focused on major life changes, such as starting a business, moving abroad, traveling, or taking a gap year from work.
“You may not be able to do everything at once, but you can do most things over time,” says Zigmont.
To keep all of these goals clear, Maldonado suggests opening a separate savings account for each and giving it a nickname, such as “Greece, $ 5,000” or “Lakeside Cabin Rental, $ 1,500”.
High-yield online savings accounts tend to offer higher returns than traditional banks, and you can set up automatic deductions from your checking account or paycheck. “It’s positive inertia that gets money to go where you want it,” she adds.
You can always make changes later. “First get into the habit of saving and then you can go back and add more goals,” says Jones.
Enjoy life along the way
As important as saving for all of these priorities is, so is enjoying life today. Don’t wait until you have a fully funded retirement to invest money in items that bring you joy, Jones warns. That’s why he’s saving up to buy a Tesla, which he hopes to buy later this year.
Maldonado and his wife contribute a certain amount of money to a family entertainment account. “We drain it every quarter. It’s a guilt-free expense for the family, ”he says, and he engages in things like camping trips, museums or parties. With their savings securely stored in other accounts, it’s shopping for the whole family can feel good.
This article was written by NerdWallet and was originally published by the Associated Press. The content is for educational and informational purposes and does not constitute investment advice.