Saving money sounds straightforward—set cash aside for a future purpose—but in reality, people often face competing savings priorities. We want it all: the travel, the house, the flush savings account. So how do we figure out which savings goals to put first, especially when we’re working toward so many things at once?
“You’re also still trying to live and have fun 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 advisory firm in West Orange, New Jersey. Saving is further complicated by the fact that we’re currently facing economic uncertainty, higher prices on everyday items and a tumultuous stock market.
Put Your Emergency Fund FirstConsider how you felt the last time you couldn’t cover an emergency, Jones says. “If it gave you major anxiety, keep that feeling in mind when you prioritize.” In other words, create your emergency fund before everything else, because it’s so critical to financial security.
Next, 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 give yourself to work on it, the better off you’ll be,” Jones says. “If you keep pushing retirement off, we blink and now we’re scrambling.”
Decide What You Want in the Near TermThis next category of savings priorities is complicated, because you must determine your near-term goals. They might include buying a home, traveling, moving to a new city, starting a family or something else entirely.
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 near-term goal is to save up to buy a home there. The pandemic spurred many people to make major lifestyle changes, he says, and as a result their near-term savings goals shifted.
“Sometimes we reset expectations and sometimes we achieve more than we thought,” he says. It’s important to check in on your savings progress at least several times a year so you can recalibrate when needed.
Jay Zigmont, CFP and founder of Childfree Wealth in Water Valley, Mississippi, works with clients who don’t have and aren’t planning on having children. He says many of them are focused on major life shifts, such as starting a business, moving overseas, traveling or taking a sabbatical from work.
Stay OrganizedTo keep all of these goals straight, Maldonado suggests opening a separate savings account for each one and giving it a nickname, such as “Greece, $5,000” or “Lake cabin rental, $1,500.”
Online, high-yield savings accounts tend to offer higher returns than those at traditional banks, and you can set up automatic deductions from your checking account or paycheck. “It’s positive inertia that keeps the money going where you want it,” he adds.
Enjoy Life Along the WayAs important as it is to save for all of those priorities, so is enjoying life today. Don’t wait until you have a fully funded retirement to put money toward items that bring you joy, Jones warns. That’s why she’s saving to buy a Tesla, which she hopes to purchase by the end of the year.
Maldonado and his wife contribute a set portion of money to a family fun account. “We drain it every quarter. It’s guilt-free spending for the family,” he says, and goes toward things like camping trips, museums or parties. With their savings safely stored in other accounts, it’s spending the whole family can feel good about.