The majority of people will spend a significant portion of their earned years saving to meet common financial goals, such as a down payment on a home, purchasing a car, and investing for retirement. If you want to achieve one or more of these goals, chances are you’re wondering if you’re saving enough money.
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To achieve a financial goal, you need to build a foundation and consider your personal priorities along the way. Here’s how you can start saving to achieve your financial goals.
Start by establishing a strong financial foundation
Angela Dorsey – CFP, founder and financial planner at Dorsey Wealth Management – said many people fail to reach their financial goals because they don’t address the fundamentals first. Before you can start saving for a financial goal, Dorsey recommends addressing the following:
Make a budget. Where is your money currently going? If you don’t know, your budget can track the amount of money coming in and out and show you where you’re spending. To achieve a financial goal, such as saving for a house, car or retirement, your spending should reflect your priorities and financial goals, Dorsey said.
Pay off credit card debt. Or at least pay off. “The goal should be to pay off your credit cards each month,” Dorsey said. “If you find yourself unable to pay off your credit cards every month, it’s a sign that you’re living beyond your means.”
Start automating savings. After cutting unnecessary expenses, Dorsey said, you should start by determining how much you can save and setting up regular automated savings. Put this amount in a separate savings account.
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Create an emergency fund
An emergency fund is part of the foundation needed to achieve your financial goals. Ideally, Dorsey said, this fund should be your first savings goal.
“It’s hard to build savings for a financial goal when you have to constantly dive in to pay for emergency expenses that come up,” Dorsey said.
How much should you keep in this fund? Dorsey recommends saving three to six months’ worth of expenses in an easily accessible bill.
Aligning personal priorities to achieve financial goals
After building an emergency fund and tackling the basic items of your financial picture, you can begin to strike the balance between saving for the future and enjoying life today, says Ashley Morris, CFP and director of financial planning at Facet.
This balance will look different for everyone. Morris said some contribute 20% of their income to savings. Others contribute more or less. Some will use strategies such as stuffing envelopes or cash, paying themselves first, or using zero-based budgeting. Each strategy can be adapted to personal savings needs.
While there is no one-size-fits-all approach to managing money and achieving goals, Morris said those who want to achieve their financial goals need to think about their values and priorities. A good example is someone who drives a 20 year old car and has 30 years left until retirement. In a situation like this, Morris said, it might be worth prioritizing a new auto fund instead of worrying about a nest egg in retirement.
What if you’ve set your sights on owning a home in the suburbs, with a yard for your dog? Morris said it might be best to put off buying the new car and instead focus on building your savings for a down payment.
“For big goals like saving for a house or car, prioritize which goal is most important to you,” Dorsey said. “Focus all your energy on that goal. Once you have saved for this goal, move on to the next goal.
Ultimately, Dorsey said, there really isn’t a uniform percentage that savers should aim for, because it depends on your goals and cash flow. Over time, some of your personal priorities will likely change and your savings will align to meet the goals that are most important to you.
“It’s important to take stock of your goals at different stages of your life,” Morris said. “By clarifying your goals today, you are taking the first step towards a bright financial future.”
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This article originally appeared on GOBankingRates.com: Are You Saving Enough Money to Reach Your Financial Goals?
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