Saving money may sound simple. Increase your income or reduce expenses, or some combination of both and you’ve got savings. I reinforce these ideas on this blog all the time. But, it’s not always that simple. Saving money doesn’t always work out the way we planned. Saving money takes discipline and sometimes setting goals. I recently established my financial goals for the short term (2-3 years). When I wrote out these short-term goals and put figures alongside these goals, I began to see how much it would cost to reach these goals.
Saving all of these figures within each designated time period seemed very difficult. Managing to save enough money to contribute towards my ROTH IRA is one thing, but paying for Mrs. 20’s graduate school at the same time takes a lot of effort. Remember that Mrs. 20’s and I don’t have a high income.
Like any debt repayment plan, these type of goals become more realistic if you can make them easy to grasp. A common way of accomplishing this is establishing how much I need to designate each month to reach these goals. As I was starting to break down these goals, I began to wonder if it is better to save towards one goal and achieve it first or work towards all of them at the same time.
Isn’t it the same?
This question may sound crazy to some of you. What I mean is some may not see why it would matter. I think it does matter. How about an example? Let’s say you have two goals of $500 dollars, one for a vacation and one for an IPAD. Okay, not the best things to save your money for, but nonetheless. You want buy the IPAD right before going on the trip, so the goals will be due at the same time. So, is it better to save for both of them at the same time or save for one first and then tackle the second one after the first one is accomplished. Does it matter?
Saving Isn’t Just About the Math
If there is one thing that I have learned, it is that saving is more than numbers. Saving is extremely psychological. It is about our connection to what it represents. Think about the saving goals. It isn’t just $1,000, is it? No, it is a vacation (granted, a cheap one) and an IPAD! These mean something to us! $1,000 by itself, without any understanding of what we can get for $1,000 means nothing.
Because this is true, saving for one thing at a time will almost always have better results. Many people call this the snowball effect. It is usually applied to debt, but the principle translates easily for savings as well. The idea is that if you save money for one thing and accomplish it, you will get excited about your success. It will then make the next goal seem much more achievable. Once you accomplish the first one, it means that the second one will come so much faster. Otherwise, if you focus on both goals at the same time, you may get overwhelmed. If you are saving for something important (like I am), try saving towards one thing at a time and work towards the others after you accomplish the first. I think you’ll be amazed at the results.
Have you had success with a savings snowball?