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- A strong savings goal has a clear purpose, dollar amount, and deadline.
- If you're struggling to make progress toward a goal, break it into smaller goals.
- High-yield savings accounts and CDs could be places to store money for short-term saving goals.
Establishing strong savings goals is an excellent way to save money. To reach your goals, it's important to know how to set a good savings goal and how to develop strategies for accomplishing it.
How to set a good savings goal
The key to setting a good savings goal is finding ways to make it measurable, time-related, and specific, says Christopher Stroup, CFP and financial advisor at Abacus Wealth Partners.
"A bad goal would be, 'I want to save more.' That's opaque and something you can't anchor or track yourself," says Stroup. "A better goal would be more specific, like, 'I want to save $3,000 to my emergency reserve over the next six months.'"
Here are three steps for creating strong savings goals.
Have a clear purpose for saving money
Know why you're saving money. Is it for a vacation, holiday savings, or a down payment on a home?
Patrina Dixon, CFEI, RFC, and founder and CEO of It'$ My Money, says setting a clear purpose may help you be more aware of how discretionary spending impacts your savings.
"If you know you're saving to go on vacation, as an example, then have a picture of that. When you think about spending, you may look at that picture and realize, 'If I buy this item, then it's going to take me longer to save what I need to go on vacation,'" says Dixon.
Attach a dollar amount to your goal
Figure out the total amount of money you'll need to save to reach your goal.
For example, if it's for a vacation, calculate the expenses for the trip, such as plane tickets, places to stay, activities, and food.
If you're setting up an emergency fund, financial experts generally recommend saving around three to six months of expenses.
"I think it's important to understand what the absolute amount is that you need to be saving before you can build the pieces from there. It helps consumers understand the right size of the goal so that they have a target," explains Stroup.
Set a deadline for your goal
Establish a date for when you want to finish your goal. You can factor in your budget to determine how much you can set aside each week or month.
Once you've established your savings goal, consider the following tips for maintaining and executing it.
How to maintain a good saving goal
Explore interest-earning bank accounts
Finding the right place to save money may help you achieve your goals. Stroup says high-yield savings accounts, CDs, and money market accounts could be good options for short-term goals since they are safe, interest-earning bank accounts.
Your money is insured by the FDIC in a bank account. If a bank fails, up to $250,000 per depositor, per ownership category is secure in these accounts. The best high-yield savings accounts, CDs, and money market accounts pay high rates with minimal fees.
If you have a longer time horizon for your goal and are comfortable taking risks, Stroup says you might consider investing money instead of saving.
If you want to track your progress toward a goal in an account, Dixon suggests opening multiple savings accounts or a high-yield savings account with a bucketing feature. Using this strategy may be helpful if you want to separate the money for your financial goal from the rest of your savings.
Prioritize your savings goal before you spend
Both Stroup and Dixon advise setting up automatic transfers from your paycheck to a savings account. Implementing this strategy allows you to prioritize your savings goal before other expenses. It also ensures you're making contributions regularly.
Track your progress and make adjustments when necessary
Check in regularly to see your savings progress.
Some savings accounts have bucketing features that allow you to create individual savings accounts and see your progress on that specific goal.
If you're maintaining all of your savings in one account, you could also use one of the best budgeting apps to track your progress.
In some instances, you might not be able to save as much money as anticipated — that's fine. When this happens, analyze your spending and readjust your budget. Try placing a spending limit on an area where you think you could cut back.
Break your goal into smaller tasks if you're struggling
Some goals may be easier to save for than others. If you're saving for a large expense or establishing an emergency fund, Stroup recommends breaking your goal into smaller goals.
For example, let's say you want to save a total of $20,000 in an emergency fund. You could break down your goal into stages. Start by trying to save $4,000 in a year. Once you've saved $4,000, you could then aim to save a total of $8,000 in the next year, and so forth, until you reach an emergency fund of $20,000.
In all, having a clearly defined reason for saving money and a plan of execution can go a long way toward achieving your financial goals. If you're struggling to meet a saving goal, ask yourself if you can adjust your strategy to increase your chances of success.
Savings goals FAQs
What is a good savings goal?
A good saving goal needs to be precise rather than vague. It also helps to establish an execution plan so you can follow through on your goal.
How do I determine my savings goal?
You can determine a savings goal by establishing a purpose, attaching a dollar amount, and setting a date for when you want to accomplish a goal. This framework helps make goals tangible and encourages follow-through. If you saving for a short-term goal, an interest-earning bank account that is insured by the FDIC could be a good place to keep your money.
What is the 30-30-30-10 rule for savings?
The 30-30-30-10 rule is a budgeting strategy that divides your budget into 30% toward housing, 30% toward essential expenses, 30% toward financial goals, and 10% toward non-essential expenses.