As we turn the pages of our calendars further into the year, it likely serves as a reminder for many families to set aside money for the future. More Americans set aside money for savings and investments in 2021 than they did the year before, according to a survey from COUNTRY Financial®.* While encouraging people to save is a worthy cause, they need to know what they are saving for, how much to save and where to put that money. Consider these tips to help your savings gain traction this year:
1. Know the Difference Between “Saving” vs. “Savings”
When setting savings goals, define what saving really means. First, there is “saving” as a verb, as in something we do, like saving for an upcoming purchase. Then there is “savings,” the noun, as in where we put that money.
The act of saving itself is not a goal, like, “I want to save $500 per month.” Instead, you need an end game for that money, such as, “I want to save $500 per month toward my emergency fund.”
2. Save for Short- and Long-Term Needs
You can categorize most savings goals by when the funds might be needed. There are short- and long-term goals, and most people need both for their financial health.
Short-term savings goals usually target needs within the next year or two. You would use savings options that allow easy access to the money, like a savings account with a bank. Examples of short-term goals may include an emergency fund or an upcoming purchase.
Long-term financial goals like saving for retirement should rarely, if ever, be in “savings” type accounts. Instead, consider investments. These can be low-risk, high-risk or somewhere in between. In most cases, investment instruments are either situations where the money won’t be needed for many years or the distributions will need to be stretched over many years.
3. Prioritize Goals
Emergency Savings: Everyone will have different priorities, but generally, establishing minimum emergency savings should be a priority. Financial professionals recommend saving three to six months of daily living expenses in a safe, accessible location, like a bank account. However, that amount can be very intimidating to many, so start with saving at least $1,000, build toward two to three months of daily spending and work your way to that three-to-six-months goal. Once you progress on your emergency fund, you can shift your focus to tackling long-term goals.
College Savings: For many parents, saving for their kids’ education is top of mind. According to a survey from COUNTRY Financial, 64% of parents say they will be responsible for paying for their child(ren)’s college education, but 27% are not very confident they will have financial resources to send their kids to college.*
All of this can sound daunting, but parents need to remember to take care of their own financial needs before saving for their kids’ college education. Grants, loans, scholarships and other types of financial assistance can help offset the cost of a college education. None of those things exist for retirement.
Retirement Savings: Many may feel tempted to put off retirement savings, so they have the money to pursue other goals, most often to purchase big-ticket items. Of course, life shouldn’t be “all work and no play.” However, if you’re not making a concerted effort now to set aside the money for retirement, you won’t be able to stop working – and then you won’t have as much time to “play” in retirement.
For many, an easy place to begin saving for retirement is through an employer-sponsored plan, such as a 401(k). Payroll deduction makes saving simpler, and any matching employer contributions accelerate your progress. If you don’t have an employer-sponsored plan, you may want to consider contributing to a traditional or Roth IRA.
There isn’t a universally “right” amount when it comes to long-term accumulation. It’s different for everyone depending on individual needs and goals.
4. Start Saving
Once you’ve set your savings goals, you need to budget for them. A financial professional can often help review a budget or spending plan to “find” the money needed to save for goals and build a strategy for how much to save. Creating a budget can help you make informed spending decisions to make progress toward your goals.
About the Author: Scott Jensen, CFP®, ChFC®, CLU®, RICP®, serves as manager of financial planning support at COUNTRY Financial. He can provide expertise in all areas of financial planning, including business continuation, investment management, education funding, insurance needs, and retirement accumulation and distribution. He is located in Queen Creek, Arizona.
*The COUNTRY Financial Security Index® survey of 1,015 U.S. adults, fielded by market researcher Ipsos.
