“If one moves confidently in the direction of his dreams, and endeavours to live the life which he has imagined, he will meet with a success unexpected in common hours.” — Henry David Thoreau
We’re all saving for something, right? Whether it’s a comfortable retirement, your first home, your next home, your first car, or your next car, we’re always saving with a goal in mind. So why is it that sometimes we save money for the sake of saving money? We don’t put those goals at the front of our mind even though that’s why we’re saving.
Great Motivation
The number one reason why you should set savings goals, rather than saving for the sake of saving, is that they provide motivation. By establishing milestones and minutestones, they act as motivation and a morale booster whenever your hit each of those markers.
Let’s say you want to buy your first car but in order to do that you need to save $1,200. You want to buy this car in a year so your goal is to save $1,200 a year, or $100 a month. The first month will probably be the hardest, since you won’t really know how “hard” it is to save $100 and still satisfy your other obligations, but once you do that the rest will come more easily. As you reach $100 each month, you can see progress towards your goal, a history of success, and the likelihood of you succeeding is that much greater.
Tradeoff Decisions
Without a goal, it’s extremely difficult to make decisions about your spending. It’s much easier if you have two things you can compare to one another. Taking the car savings example again, let’s say your friends ask you if you want to see a movie this weekend. With a goal, you have to pick between seeing a movie for $10 or putting the $10 towards your $100 a month car savings goal. You decide whether you prefer the entertainment or being closer to your monthly savings goal and it’s a very concrete decision.
Same scenario, but no goal this time. Now your decision is just whether or not you want to spend $10 for a movie. It’s no longer a saving decision, it’s merely a spending decision. Do you want to see a movie? The likelihood of you saving money in that case is much smaller because there’s no purpose, you save it and you feel no sense of progress but you don’t get the enjoyment of the movie. With a goal, at least you can make a decision.
Constant Reminders
Finally, with a specific goal, or goals, you can constantly remind yourself with something specific, rather than something general, to keep you on track. You can cut out a picture of the car you want to buy and put it in your wallet or purse. You can track your progress with a bar on your refrigerator or on the dashboard of your current car.
One of the best features of most online savings accounts (a certain Orange one comes to mind) is how easy it is to setup different savings accounts. You can set up a new account for each goal that you have, giving the account the name of the goal (Car Downpayment, Trip Fund, etc) so that your goals are broken out and it’s easy to see progress. It’s much harder to look at one account balance and mentally parse out which dollar goes where. The fact that they have competitive savings account rates sure helps too.
Without a goal, without a sense of progress, and without the motivation of small successes, it becomes much harder to save money. It’s even harder to plan your future if you don’t have these financially dependent goals, so if you don’t have specific goals in mind, set some. They don’t have to be huge goals like a down payment on a car, setting those will require some time and insight into your situation, which you will develop over time. And if you have big goals, consider setting milestones and minutestones, smaller goals that will boost your morale when you do reach them.
Jim writes about personal finance at Bargaineering.com.
Have you met our Customer Bloggers? Alicia, Matt, Nancy, Susan, T.J. and Alison are sharing their savings goals—and how they are staying motivated to meet those goals. Read their stories here.