Everyone has a different savings goal. Some people save to pay off their student loans while others save for retirement. There are also those with a specific, short-term plan, such as saving money for a holiday or a wedding. Whatever your saving dream, you’ll need to start saving to achieve it.
According to research carried out by the University of Scranton, 92 percent of people who usually set New Year’s goals end up not achieving them. That means there’s something these people do wrong that the 8 percent do exceptionally and consistently well.
The difference between the two groups of people may result from the way the two groups track their savings, the percentage of income they save, how often they save, and the specificity of their saving goals, just to name a few.
To set your savings goal and achieve them every time, do the following:
1. Choose the right account
It’s important to ensure you’re saving your money in the right account. Instead of saving funds in a standard checking account, you should consider opening an account that earns interest on your savings, and if you have an existing one, start using it to reach your financial goals.
Start by arranging for a small amount of cash to go directly to your account on a regular basis. You may even set the amounts to increase automatically and slowly over time.
If you’d like to minimize the temptation of withdrawing your savings, you should consider putting in place some barriers. For example, some accounts allow you to lock your savings for a specific period of time, and before the set time, you can’t withdraw any amount. Other accounts may apply penalty fees if you withdraw the money too fast or withdraw too much money.
2. Track your progress with a saving tracker
Being human, you’re likely to lose motivation, procrastinate, and slip back into old habits while pursuing your savings goal. To counter these setbacks, you need to get frequent feedback that will help you to both stay on track and adjust where necessary.
You can achieve this in three ways:
Use a spreadsheet
Begin by creating headings, and add savings categories down the spreadsheet’s side. Along, the side, add the saving goals.
Along the top, your spreadsheet should contain:
- Target – the amount you’d like to save
- Opening balance – the amount you’ve already saved
- Adjustments – This is optional and applicable in case you get more funds to add to your savings or would like to swap some cash between the savings goals
- The 12 months of the year
- The total savings for the entire year
- Less expenses – when you spend some of the money
- Less adjustments – It’s optional and applies if intend to swap money between your saving goals
- The total amount for your savings goal, and it includes the opening balance, adjustments, and expenses
- Remaining – This is how much more money is needed to save and reach the goal
It might look complicated, but once you apply the Excel formulas, it calculates automatically. You only need to include your savings amount every month.
Hire a coach
If you can afford it, go ahead and hire a financial expert to help you keep track of your savings so you can reach your goals.
If you suck at spreadsheets and can’t afford a financial adviser, you can use an easy method, which is:
Use a money saving app to track your savings
An easier way to set, manage and achieve saving goals is by using a money saving app. The best apps have an option to add a photo of your savings goal, whether it’s a dream home, a vacation destination or an item you intend to purchase.
An app like Money Box allows you to plan your savings frequency, be it monthly, weekly, or daily. They also let you set a target date for the savings and set reminders so you don’t forget anything.
3. Focus on the forest rather than on trees
You see, we all want to save for a long-term goal like buying a home or children’s college fees. However, while focusing on such long-term achievements, we are often faced with immediate decisions that require money.
The immediate outcomes are usually pleasurable and include may include things like attending a fun party, buying ice cream, or going for dinner in the most luxurious restaurant in town. Most people usually fall for the immediate gratification.
A decision to say no to such tempting short-term pleasures depends on a person’s focus and mindset. According to a research article published on PLOS ONE, the psychological theory known as Construal Level Theory (CLT) reveals that, how a person construes an event may have an impact on their decisions and judgments.
Specifically, the theory states that an event or object can be represented at various levels of psychological distance, which can be a high (distant/abstract) or low (near/concrete) level of construal.
Therefore, to think of a situation with a high-level construal means focusing on the superordinate, global, and central features of the event or object. In other words, it’s zooming out to look at the big picture. That’s the meaning of the proverbial focus on the forest and not trees.
On the other hand, thinking about an event or object with low-level construal refers to focusing on the specific and unique features.
Research shows that focusing on high-level construal tends to help a person develop self-control and reach his or her goals than emphasizing on low-level construal.
How do apply the proven Construal Level Theory to achieve our financial goals?
- Focus on why you should save rather than how: Write down at least three reasons why you should save rather than ways in which you’ll accomplish the goals.
- Have specific financial goals: For example, stating that you want to save $1,000 by the end of the year is non-specific, and therefore, hard to achieve. You could instead, say that you want to save $20 per week so you have $1,000 ($20 x 52 weeks) in savings by the end of the year.
- Use a money saving app – The app has useful features to help you stay on track so you avoid any distractions that may abort your savings goal
4. Leverage the 80:20 rule (but don’t be enslaved by it)
According to Tom Corley, a financial planner, accountant and author of Rich Kids: How to raise Our Children to Be Happy and Successful in Life, it’s important to follow the 80:20 rule, which is setting aside 20 percent of your earnings so you can live off the other 80 percent. You should do this irrespective of the amount of money you earn.
Corley made this discovery after surveying 233 wealthy people on a daily basis and comparing them with other 128 lower-income persons. From his five-year study of these two categories of people, he learned that becoming wealthy is not always about the amount of money you make, but the amount you keep.
If you can’t start saving 20 percent of your income right away, don’t worry.
You can start at 10 percent, 5 percent, or even 1 percent. The idea is to develop the saving habit. Once you get used to it, you can raise the percentage of money you save later on.
5. Kick out costly habits
That daily $4 latte may not seem like much at first, until you sum up the exact amount you spend on a daily basis throughout the year. Start by identifying daily habits that have hidden costs and replace them with a cheaper alternative.
Some of the options may include making coffee at home, canceling magazine subscriptions that you only read when online or canceling streaming services you no longer use.
When you do this, you’ll have enough to spend on things that matter only, thus reducing the temptation to start spending your savings for unnecessary extras.
Bringing it home
The wealthy were not born with genes that make them an automatic saver. On the contrary, research reveals that successful individuals usually achieve their goals mostly because of what they do, and not necessarily who they are. Like Aristotle once put it, “We are what we repeatedly do.” Therefore, as you practice the above skills, you should expect to start improving your saving habits and start moving toward your savings goal. Start by getting a savings account and a good money saving app to help you stay on track.