Do you currently just save “because you’re supposed to”? The goal is to move toward saving so you can say “yes” to the things that actually matter to you… whether that’s a spontaneous trip to Japan, finally moving into an apartment without roommates, or having the power to walk away from a job that’s no longer a fit.
Paying Your Future Self First
As we shared with Reverse Budgeting, many find that a helpful strategy to reach a goal is often to save first rather than waiting to see what is left at the end of the month. When you treat your savings like a non-negotiable bill, your lifestyle typically adjusts to the remaining balance. If you wait until the 30th of the month, the leftover money has a habit of going towards future regret purchases.
Calculating Your Emergency Fund
An emergency fund is typically the first financial priority. Its goal is to provide a cushion so that unexpected events, like a job loss or a surprise medical bill, do not derail your financial progress or lead to high interest loans or credit card debt.
A typical starting point that many experts recommend is aiming for 3 – 6 months of essential living expenses. To calculate, look at your spending, select the must-have items, and multiply that monthly total by 3 and 6. This gives you a typical range to shoot for.
If your income is highly variable (like commission-based sales) or you work in a volatile industry, you might lean toward the 6-month side or even 9 – 12 months. If you have high job security and low fixed costs, 3 months may be a sufficient starting point.
Remember that something is better than nothing. If the 6 month number seems overwhelming, start with a small goal of $1,000 – $2,000 to cover common emergencies like a flat tire or a surprise vet bill while you slowly build toward your larger target over time.
Where to Keep the Cash
For goals you plan to reach in the next 1-5 years, the focus is typically liquidity and safety. Liquidity is how fast you can turn an asset into “spendable” cash (homes are not very liquid) while safety considers volatility and protecting your original investment amount.
Traditional big-name banks often pay near 0% interest. A high-yield savings account (HYSA) is a bank that typically pays significantly more, helping your money maintain its purchasing power. Though keep in mind that these rates are variable and can change over time.Be sure it is FDIC-insured because this means $250,000 (per person, per bank, for each account ownership category) is backed by the government.
- The Strategy: Use “buckets” or separate accounts within your HYSA for different goals (e.g., “Emergency Fund,” “Wedding” “House Downpayment”).
Accomplishing Other Large Savings Goals
$20,000 for a car or $50,000 for a down payment can feel impossible at first.The strategy is to break those big goals into smaller, more manageable steps.
- The Sinking Fund Method: Take your total goal, divide it by the number of months until you need it, and add that to your “Non-Monthly Account” transfer. Automating the transfers removes the decision-making and ensures consistent progress towards your goals, regardless of how you’re feeling.
- One way to leapfrog your progress is to strategically use windfalls. As we discuss in How to Change Your Life with a Bonus, using a one-time performance or sign-on bonus to fully fund a goal could potentially save you months, or even years, of incremental saving.
Start Today
Start with a consistent weekly habit of saving, no matter how small the amount is. Small, consistent savings habits can build meaningful financial flexibility over time.
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Disclaimer: This material is provided for informational and educational purposes only and does not constitute legal, tax, or investment advice. The strategies discussed may not be appropriate for all individuals or situations. Eligibility and suitability depend on your specific circumstances, financial objectives, and current laws, which are subject to change.
Any examples are hypothetical and provided for illustrative purposes only. They do not represent actual client outcomes, and results will vary. You should consult with qualified tax, legal, and financial professionals before making decisions related to the topics discussed.
References to third-party resources or websites are provided for informational purposes only. SeedSafe Financial, LLC does not endorse or assume responsibility for the accuracy or completeness of external content.
Advisory services are offered through SeedSafe Financial, LLC, an SEC-registered investment adviser. Registration with the SEC does not imply a certain level of skill or training.
