Everyone has their own way of budgeting, and the options truly seem endless. Envelope method, writing down all your expenses in a journal, keeping receipts for items over $X, no credit cards, credit cards… You get the point.
One of the several ways to differentiate one budgeter from another is their savings method. As far as I can tell, there are two groups of people when it comes to their savings methods. Of course, within each group there are many variations, but on the surface, there are two ways to save:
- Save for Multiple Goals at Once
- Save for One Goal at a Time, then tackle the next goal
There are advantages to both. Before I get into which one I prefer, let’s take an honest look at both options.
Advantages of Saving for One Goal at a Time
It may be obvious, but the second option is much simpler. It’s much easier to stay focused on one goal than to juggle multiple goals at once. Why get distracted, when you can narrow your focus on one and achieve that goal before moving on to the next important goal?
The second advantage to saving one goal at a time is that your goals get accomplished that much faster. It’s the same type of approach as the debt snowball approach. By focusing on one loan or debt, individuals are able to gain momentum and free up more money to pay down their loans. This advantage is mostly psychological for those who see it this way. It boosts your motivation and confidence to see tangible progress towards that goal – and because you are focusing on one goal at a time, the progress is amplified.
Last, but certainly not least, is that this method of saving forces you to prioritize. Unlike the alternative method, which I’ll discuss next, you are forced to choose which savings goal is most important. For example, at the beginning of the year, you may be forced to choose which is most important: contributing the max to your Roth IRA OR saving for a vacation. Both are important, but I’m guessing the diligent budgeter chooses Roth IRA in that example. Of course, not all are options are easily prioritized, but it is a convenient way to force yourself to choose.
Advantages of Juggling Multiple Savings Goals at Once
However, if you are like me, and prefer to see progress on multiple fronts at the same time, you may prefer the alternative. Saving for multiple goals at once takes a little bit more diligence, but that alone doesn’t make it better.
While it may be a little more complicated to save for multiple things at once, I prefer this method because I get too bored with one goal. By using multiple simultaneous goals, I keep myself engaged in my finances. It keeps me interested. It may sound weird, but I take pleasure in being able to juggle multiple things at once and do it well.
As I mentioned, it takes more diligence because you aren’t able to see the fast, tangible progress along the way. You don’t get that high from reaching your single goal in a matter of months.
On top of the thrill of successfully multitasking, the other advantage of this approach lies in the fact that not all savings goals can be prioritized over another. For example, my wife and I are currently saving for retirement (as we always do), but also for a down payment on a future home. As you will recall, mathematically speaking, temporarily ignoring retirement to prioritize a down payment would be a mistake. The numbers don’t lie – (assuming that the market performs on average, as is the recent trend, of course).
Forcing yourself to choose when you don’t have to seems short-sighted in my opinion; but I say that knowing myself and knowing that I can also motivate myself enough to endure the slower-moving individual fund balances.
Personal Finance is More than Calculating the Numbers
While I prefer to juggle multiple savings goals at once, I don’t fault anyone for choosing the alternative – as long as they are doing it with full knowledge of WHY they are doing it. In the end, you have to choose what will help you succeed and in case you haven’t already realized this, it’s often more about the psychology than the numbers.