Setting realistic savings goals

It’s important to set savings targets when you’re dreaming of that big purchase—but hitting them can be a different matter altogether. 

It's easy to set ambitious savings goals that then fall by the wayside – scrimping and saving every cent is (often) unrealistic. This article provides practical strategies for working out the savings goals that work for your lifestyle and budget, as well as advice to keep you on the savings straight and narrow.

Whether you’re saving for something essential, such as a house deposit or your children’s education, or something dreamy, like a holiday or sports car, setting a savings goal can help you reach your target faster.

But it must be a realistic goal. Too often, savings targets are overly ambitious, which can mean people lose interest and motivation very quickly.

If, for example, you try to go from saving nothing to putting away 75 percent of your income in just a couple of weeks, the level of discipline you’ve set yourself probably won’t work and the shock to your lifestyle will be too great.

A savings goal is only realistic if it’s achievable without too drastic a change. Even something as simple as skipping that last drink with friends or buying a slightly cheaper bottle of wine to have with dinner, will help the savings process.

The reason we set savings targets is to lessen our stress — not exacerbate it! If your goal is realistic, you’ll be able to see progress without starving yourself or shivering through a bleak winter.

Here are some tactics that might help you devise, and stick to, a savings plan that actually works for your situation.

Work out your “capacity to save”

In devising a savings goal, the easy part (usually) is working out your income figure. The harder part is getting a handle on your spending.

The best way to approach this is to break the spending into separate components, such as:

Essential expenditure, such as mortgage or rent, council rates, utility bills and car registration.

Debts, including repayments on credit cards and loans.

Discretionary spending, like a gym membership, going out to a restaurant, or breakfast with friends.

As you’ll need to continue to pay your essential expenses and debts, your discretionary spending will indicate the very upper limits of your capacity to save — if you try to save more than this, you’ll most likely stumble before you’ve even left the starting gates.

Measure your progress

A good way to ensure you’re being realistic is to set milestones that indicate solid progress, and then check these off along the way.

Milestones also help to make budgeting your progress a matter of routine, which helps to get you back on track if you’ve faltered.

Some timelines are straightforward: for example, you may want to go on a European holiday next year or have a deposit ready for that dream home in two years.

For longer term goals, such as saving up for your retirement or setting up an education fund for your young children, you may want to set benchmarks and dates that help you measure your progress.

For example, you may decide you want to have $50,000 in that education fund for your two children by the time you reach 35. Create a chart, or spreadsheet, with the goal broken down into monthly or quarterly targets, and then tick off each milestone along the way. You can find some great goal trackers online that allow you to colour in your progress, providing a visual of where you’re at.

This will help keep you motivated without feeling overwhelmed.

Give yourself daily reminders

It takes a fair bit of motivation to embark on a serious plan to save money.

So, help yourself out by writing down your goals somewhere you’ll see them often: on a fridge magnet, on the steering wheel of your car, or in the notes app on your phone.

These can be daily reminders of what you’re trying to achieve. And a reminder of how great it’s going to feel when you reach those goals.

But, as we mentioned at the outset, make sure your goals are realistic for the amount of money you’ll have left over after essential spending. Don’t set yourself up to fail from the beginning.

Use cash not credit

There are other simple ways to cut down on your spending to help achieve a savings goal.

To take a personal example, Sarah, a 32-year-old advertising executive from Melbourne, says it’s more “painful” to pay with cash than a credit card, so that’s the method she always tries to use, at least for her “vices”.

“I have a cash-only budget for clothing and shoes,” she says.

“Clothing and shoes are my real vice, but I don’t want to stop buying them. My solution is to create a cash-only monthly ‘allowance’ to myself, to use for clothing and shoes.” 

It’s psychologically more difficult to hand over cash than it is to swipe a card, Sarah says, which is the key to making her clothing and shoes budget work for her. “When my cash clothing-and-shoes budget runs out for the month, it runs out,” she explains. “I can’t spend any more for that month.”

Don’t make saving a torturous exercise

Saving up for something usually means cutting back your spending on the fun stuff, the things that you really enjoy, such as shopping, clothes, restaurants and nights out.

While you want to stay disciplined, it’s important to acknowledge that you need some leisure time now and then, and to enjoy yourself. One trick is to celebrate once certain savings milestones have been reached, so you can treat yourself (in moderation) for sticking to your savings plan.

As we say, there must be a balance between your day-to-day life and your goals.

Saving for a goal does require some dedication, but with a realistic target and the right approach, you’ll be enjoying that tropical sunset, or your first meal in your new home, sooner than you think.  

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