Having a savings goal is probably the most important first step of financial planning. What most people would define as “savings” would be leftover money after all other financial obligations are incurred. Figuring out what you need savings for, such as an emergency fund if you ever lost your job, your current cost of living expenses, paying off current debt such as student loans, if you have children and want to provide for them a college education and also your retirement. What’s important is to honestly and accurately account for expenses as most people tend to have “rosy” assessments of how much money they spend when the reality is “stuff happens”. Getting expenses under control is the other key to meet your savings goals, writing out a budget and sticking to it has been a helpful guide for people to figure out where the money is going and to prioritize.
What your saving goal is for needs to have priorities as well. For example, one probably shouldn’t save money for their kid’s education at the expense of their own retirement. You should first contribute to your own retirement account as a college student has the ability to get a loan for their education, a person can’t borrow for their retirement. Also, not everyone decides to go to college and unwinding certain education accounts can have tax penalties. In addition, a person that has a savings goal should also understand that in most circumstances, ongoing debt should be paid before money is “saved” and invested in things like retirement. If, for example someone has credit card debt that carries an interest rate of 20% that should be paid before any sort of savings is put into investments as almost no investment can promise a 20% rate of return.
A savings goal is an important step that unfortunately too many people simply don’t have or don’t think about. Consumer debt is at an all-time high, which is the exact opposite of savings. Writing down a goal with a savings plan is the best way to start putting someone on a path of financial independence.