Saving Goals: How to Set & Keep Them
We all know it’s wise to save money. Yet, knowing how much is reasonable to save is a different story. That’s why we’re talking about saving goals: why they matter, how to set them, and how to keep them.
Saving goals (a.k.a. savings goals) are the specific objectives you have for your money. This could be a short-term goal like a holiday or new car – or something longer-term, like buying a house or building up a retirement fund. Your priorities and aims will inevitably differ by age, by earnings, and by how frugal you’re willing to be. However, the simple act of setting a savings goal can be helpful for all of us.
Here’s all you need to know about saving goals.
Why Set a Goal for Your Savings?
To start with, why set a saving goal? Or why not just save? Research suggests that there are two main reasons why goal-oriented saving is the most effective way to build up cash.
According to a study by National Savings and Investments, people who set savings goals save more. On average, those who set themselves a tangible goal – e.g. a specific sum for a holiday or a car – will save 35% more than those who save without a goal. That equates to £39 extra a month, on average, or £468 a year.
Why does this happen? Research suggests that you’re more likely to save if you have a reason to save. Reminding yourself of this reason helps too: according to the Money Advice Service, changing the name of your savings account helps you build your savings more quickly.
Build Long-Term Saving Habits
It’s great to save toward a short-term goal. However, one of the more important effects of setting and sticking to savings goals is that they change your financial habits over a lifetime, according to research.
That means that you are more likely to save for less concrete things, such as retirement, emergencies, or just a “rainy day”, if you practise saving with goals. It may be surprising, but saving is a skill too.
What are Some Saving Goals?
Saving goals are flexible and unfussy things. They can range from the short-term to the long. And they can be directed towards anything from a holiday to a new home, from a road trip to a retirement fund.
The best saving goals are those that actually make you want to save. In this way, the problem with saving for retirement is that such a time might feel too abstract and far away. In the short term, however, a different problem arises: once you have reached your goal, you are going to spend the money accrued.
So, let’s take a look at some good targets for your savings. You can use these when you are setting savings goals yourself.
- A new car. Saving for a car is a great goal. The average price of a first car is just over £4,000, according to research conducted by GoCompare in 2019.
- A first house. One of the most common goals for young people is to finally be able to get onto the property ladder. Zoopla says that the cost of a first home averages at £220,000 (accurate in January 2020), and the average deposit is 22% of that total.
- Travelling. A more modest goal is travelling. For a backpacking trip, expect to spend around £1,000 a month plus flights. A week in a beach resort might cost similar, depending on where.
- Retirement. Saving for retirement is inevitably going to be more complex than saving for going travelling. The strategy depends on your age, how much your employer pays into your pension (if anything), and when you want to retire.
For a “comfortable” pension, according to the Pensions and Lifetime Savings Association, you’ll need about £20,000 for each year of retirement if you are single.
What is a Realistic Saving Goal?
Whilst flat figures are helpful, there is no single savings goal that can be described as realistic for everyone. In these matters, far too much depends on your income and your personal expenditure.
So, let’s put the numbers aside for a moment and think about what you could manage to save yourself. Here, what’s known as the 50/30/20 rule can come in handy.
Saving Twenty Percent
The 50/30/20 rule is one of the most famous budgeting techniques around. It’s handy precisely because it doesn’t stipulate any precise sum. Rather, it breaks down your income into three different groups.
50% goes on your everyday needs and 30% should go on things that you want. Importantly, 20% of your income should go on savings and paying off debts. If you are debt-free and on a £25,000 salary, that calculates at just over £4,000 in savings annually.
Other budgeting rules agree that 20% of your income seems to be the magic number for savings. The 70/20/10 rule, for example, gives you 70% of your income to spend on all expenditure, both necessary and frivolous. This leaves you 10% for debts and 20% again for your savings.
As a savings goal calculator, that 20% can be a handy reference point.
How to Keep Savings Goals
Setting savings goals is all well and good but keeping them is a different matter.
None of this makes it impossible, however, and as soon as you are up-and-running, things will become a little easier. Here are some tips to help you keep those savings goals.
1. Talk to Friends
Firstly, it is worth admitting that it can be difficult to cut back on your spending if your friends don’t do it. If you usually go out for dinner together but your new savings regime advises against it, you can find yourself in a difficult situation. Talking to your friends about your saving goals might make this easier. And you can find something else to do together instead.
2. Break It Down
If you’re hoping to save 20% of your income, that potential figure of £4,000 saved a year can seem like an awful lot. Breaking this down and setting micro-goals will help you to stay motivated. £4000 a year equates to £333.33 a month in savings, which seems much more manageable. However, break it down again and £83 a week isn’t so bad at all.
3. Automate Your Savings
Whilst it can be reassuring to feel like you have control over your money, leaving yourself responsibility for your savings can mean that you don’t always put that money aside. Setting up a standing order so that your savings are stored away automatically means that you’re not tempted to touch it at all. Pay day is the best time to do this. You can do this easily with a recurring transfer to your Revolut Vault.
4. Use Apps for Savings Goals
These days, there is lots of technology designed to help you save money.
Think of Revolut, for example. With the Budget Planner, you can set targets for your outgoings in different parts of your life. You can track all of your expenses in real-time too, whilst easily putting money aside in savings vaults. Sticking to a budget or savings goal is all about knowing how much you spend. Apps for managing money are a great way to keep on top of this.
How Do You Separate Savings Goals?
It’s perfectly reasonable to save for more than one thing at once. Whilst this can be a potential source of confusion, it needn’t be: there are ways to separate saving goals to make juggling different targets easier.
Firstly, you’re not limited to just one savings account. Using different accounts with different names, can be a great way of managing how your money goes towards specific goals. One might include your funds for a house deposit, whilst you can use another to store your change for your holiday.
Remember that 20% figure. You can put 10% away for a house, 5% for a new car, and 5% for a holiday.
How Much Should a 30-Year-Old Have in Savings?
Finally, one of the most common questions asked by anxious twenty-somethings, how much should someone have in savings at age 30?
You may have heard different answers to this question. Some say that, at thirty, your savings should equal your current annual salary. Others say that six months of living expenses is sufficient.
This might seem like a lot – and for many it will be. According to the Office for National Statistics, 53% of people in their twenties have no savings at all, and the rest have an average of £1,600. That’s exactly why savings goals matter as much as they do.
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