The other day a reader asked about keeping track of multiple savings goals:
‘I have multiple savings goal over many months. I want to spend on some of them while trying to save enough to cover all of them. How do i calculate?’
This is a good question and it follows on nicely from the last two articles regarding savings goals. Most of us have multiple savings goals, all with different ‘due’ dates. Some savings goals are ‘rolling goals’ like a clothing budget, a Christmas fund, car registration and other bills. This means that if you withdraw some cash to cover new work clothes, you still want to keep saving for future purchases.
I’m a huge fan of writing things down and keeping records. There are too many things to think about without trying to worry about whether you can pay the electricity bill or whether you have saved enough for your next holiday.
Rather than dealing with ‘maybe’, ‘might’ and ‘possibly’, by keeping financial records (aka a budget) you have cold hard data from which you can easily evaluate your progress towards your savings goals.
Below is the method I use for keeping track of multiple savings goals.
1. Have a savings account dedicated to savings
Use a savings account that is separate from your everyday account and that earns you high interest. When saving for multiple goals with different end dates, you want an account that doesn’t charge fees or penalise you for withdrawing money when you need to.
2. Write down each of your goals
The best way to keep track of each of your goals and your progress towards reaching those goals is to write them down. I like to use Excel to keep track of my savings goals, but you can do the same exercise on a piece of paper or in an exercise book.
First write out a list of your goals, the date each one is ‘due’ and the amount that you need to save for each goal.
Next divide the amount you need to save up into pay periods (monthly, fortnightly or weekly – whichever suits you best). This is how much you need to save for each goal to reach your target on time. For example:
|Washing Machine||Jan ‘12||$350||$117||$0||$117||$58||$175||$175|
You can have as many savings goals as you like, although the more you have, the longer it takes to save for your goals.
TIP: I like to put a little visual reminder in my spreadsheet of when each goal is due (anything to make things easier). I do this by putting a small star (Insert: Shape) in the month that I need to have saved by. I do this especially for large bills like rates and car registration.
If you prefer to use an exercise book (which is what I did before I fell in love with Excel) put each savings goal on a separate page and have a summary page for the total amount in your savings account. Draw up three columns on each page to write down amounts as you deposit them into your account, to write down ‘withdrawals’ and to keep a running total. Depending on your savings timeframe, you may need to leave several pages per goal. For example:
|Holiday – Target $5,000||Due: September ‘12||Monthly Savings: $417|
3. Calculate how much you need to save each period
In the first example above, I would need to put aside $534 each month to reach both savings goals ($417 for the holiday + $117 for the washing machine).
So to reach your savings goals, you physically deposit your $534 into your savings (bank) account and you write it up in your savings book or spreadsheet as separate amounts (the $417 and $117) for each goal.
What happens if you need to save more than you are able? You have three options:
- cut back on expenses in order to boost your savings; and / or
- earn more money; or if both of those options aren’t practical
- prioritise your savings goals and save for those that are most urgent or most important first
As far as the third option is concerned, just say I can only save $450 a month and that I feel the washing machine will probably last a few more months than I predict. In that case, I would put the $417 towards the holiday and the remaining $33 towards the washing machine.
Remember, you can have a lot of savings goals, but you can only save as much as your circumstances allow.
4. Automate your savings
Once you know how much you need to save in total towards each savings goal, automate it. Use your online banking facility to schedule the deposit after each time you get paid.
There are two reasons why automating your savings is important. The first is that you don’t spend or miss what you don’t see, which keeps you on track, even if your motivation wavers.
The second is that while you may have good intentions to save money, expenses can just ‘pop up’ and it is easy to spend everything in your account. By paying yourself first, you are forced to spend within the limitations of what remains.
5. Use the total balance to reconcile
When you’re tracking multiple goals, it is the balance of each goal that is important not the total balance in your savings account. So to labour the point, track the progress of each goal not the bank balance.
However, you will want to reconcile your written records with what you actually have in your bank account and you do this with the total balance.
Either using excel or on paper, add up the total balance of each savings goal. This total should equal your bank account balance. So in the example above, the total saved so far for both goals is $1,218. This should be equal to the balance on your bank statement.
6. Recalculate when new goals arise or old ones are met
Each time you reach a goal or new goals arise, you will need to calculate the total amount you need to save each period (monthly in the above example).
So for our example, once we have saved for the washing machine, we only need to put aside $417 each month to reach our only goal, the holiday.
Then if we have a new goal of saving for a deposit on a home, and we calculate that we need to save $200 a month, then our new monthly amount is $617.
Once we have calculated the new amount, we then need to change the schedule with the bank and automate the $617.
The key to keeping track of multiple goals is to keep a written record of your goals and focus on the balance of each goal, rather than the total balance of your bank account.
How do you keep track of your savings goals?