Saving for Goals or Emergencies

Having the right mindset regarding saving is the most critical factor when planning for a large purchase. Without the right focus, outlook, and motivation, it’s all too easy to become distracted and discouraged along the way.

Here are some quick tips on developing the right “psychology” for saving:

1. Resist the belief that you can’t save more money. 

2. Be honest about needs and wants:
   • Needs = Things to sustain life
   • Wants = Non essentials
3. Focus on what you are gaining from spending less rather that what you are losing. For example, spending $5.00 less each day on lunches allows you to gain $1,200 for next year’s vacation.

4. Learn to see how your spending and saving impacts your values — the things that are most important to you. For example, you value financial security. Spending $125 less each month on cable = $1,500 annually for emergencies.

5. Always manage your finances in line with specific financial goals.

Creating goals that motivate you to save:
When planning for a large purchase, you have to have positive motivation. That’s where goals come into play. The ability to see real progress toward the things that are truly important to you will inspire you to press on. Follow this goal-planning method to develop both short-term (reachable within one year) and long-term goals (reachable in more than a year):

1. Write down each of your short- and long-term goals.
2. Prioritize each goal.
3. Determine the total cost of each goal.
4. Determine when — in number of months — you would like to achieve each goal.
5. Divide the cost by the number of months to determine how much you need to save each month to achieve the goals.

How you contribute to your savings goal for a large purchase can have a large impact on your success. Naturally, most of us struggle with issues of willpower, enthusiasm, and organization that can diminish our ability to contribute to our goals over time. Here are a few things you can do to overcome these common challenges:

1. Have a specific account for your large purchase. Separate accounting will keep things clear and keep you from dipping in for other reasons.
2. Set up automatic contributions. Out of sight, out of mind means fewer opportunities to change course. Learn about ESL savings accounts that offer automatic contributions.
3. See your contribution to savings for your large purchase as a regular expense in your budget. To figure out how much you can contribute, check out the Make a Budget worksheet on consumer.gov to get started.
4. Schedule a reoccurring time to review your account balance. Seeing your progress will help you stay encouraged.

Here are some of the most common ways to contribute to savings for a large purchase:

A small amount of money each month can add up to significant savings over time. As you make adjustments and free up cash from your budget, it’s imperative that you have a place for it to go. Otherwise, it gets spent somewhere! Having a savings account is a smart option for stashing away money for emergencies and your short-term goals.

Finding the right account:
Your goal in finding the right savings account comes down to a few things:

• First, make sure the account doesn’t carry high fees that will eat away at your balance. 
• Next, make sure that the account earns a similar interest/dividend rate to the current average.
• Finally, make sure the account gives you options for online management such as tracking, transfers, and categories.
  • This will help you manage your progress towards your goals.

At ESL, we have savings account options to fit your needs.

There are many schools of thought when it comes to the subject of emergency savings, but the one point that all experts agree upon is that everyone should have one! Think about it this way, there are really only two things that can cause financial difficulties:

1. Your expenses exceed your income.
2. You experience an unexpected event or emergency - job loss, repairs, etc.

A good emergency fund is the foundation for any savings plan to have a chance of succeeding. Some experts recommend contributing 10% of your earnings and accumulating 3-6 months’ worth of living expenses. If this sounds too lofty for you right now, here are a few important thoughts to consider:

1. Commit to a continual development of your emergency fund using small-step goals. For example, your initial goal might be to accumulate a few hundred dollars. From there you might increase the goal to $1,000. Continue this process without placing any final limitation on your fund and work on saving as much as possible.
2. Don’t save just for the sake of saving. Make sure that you save with purpose. When you save for emergencies, make sure you name the account an “emergency savings” account. This will help you to avoid feelings of frustration when you have to withdraw money from that account for emergencies – that’s what it’s there for!