Let’s be completely honest: what’s the point in saving? Why spend less today if you’re not expecting a benefit tomorrow? The real question we should ask ourselves to start saving is: what do I really want to do with my life and what are my personal goals?
The reason why it’s necessary to sit and do the math, building a budget and taking savings into account, is knowing the way we’re going to finance our goals, basically to make our dreams come true.
Of course it’s healthy to save for emergencies. Life is constantly moving and full of surprises: you could lose your job, earn a partial scholarship to study abroad, have a car accident or have a baby and start your own family.
Saving is also important because it allows you to take opportunities like buying that house you’ve always wanted at a better price because the owner needs the money now, investing on an instrument currently on historical minimums or opening that business you’ve always wanted to open.
From our parents’ wisdom we learned the importance of living within our means to have stability and tranquility; it’s a principle that’s always current in personal finance. However, it’s one thing for it to be a basic rule of balance and another to have to rely on cup noodles to save some money.
What’s not commonly said is that our means should adjust to our personal goals and not the other way around: we should find the financial plan that better fits our goals. It can go from spending a little less on those early-morning coffees in the office, starting a freelance project to generate extra income, sell some property or even work extra hours.
1. Be specific with the goals you set
Saying we want to buy an apartment next year or wanting to leave the country right now to pursue a Masters Degree, or even saying we want to be a millionaire in five years is nonsense if you don’t know the details. What do you need to buy an apartment? Do you need any prerequisites to start a masters? What does it mean to be a millionaire?
2. Include the exact amount
Do some research. For example, let’s suppose you want to take a sabbatical traveling around the world; as impossible as it sounds, you can achieve it. Think that you won’t have steady income for a year, so you’ll have to save enough to have a complete year of your current salary. If your monthly income is of $15,000, that’s $180,000 for a year. If you save 20% a month, which is $3,000, then you’ll have your total in 5 years.
If you take the cost of your goal into account, you now need to write it somewhere you can see it every day, so it’s always on your mind and you have an easier time saving. If you’re not sure the amount is correct, go directly to your source of information, like a travel agency, or talk with someone who has already achieved your goal.
3. Set a date
It’s not the same saying ‘’I want to have my own house someday’’ to saying ‘’By September of 2025, I’ll have enough for a down payment on a house in the fanciest neighborhood in town’’. The more specific the date, the better.
You can also have several goals at the same time, but the date doesn’t have to be the same.
- Short term: you can start right now and be done in six months. For example, if you recently graduated, still living with your parents and with a $10,000 a month salary, you can save half every month to give a down payment on your first car.
- Middle term: from a year to three years. For example, those dream vacations to Europe.
- Long term: any goal to be achieved in more than three years, like your retirement, buying a house, college for your children, your inheritance, etc.
Think of all the small details that are taking money away from your personal goals and start making a plan that allows you to have the house you want, a masters degree or starting that business you’ve always wanted, even an early retirement.