As soon as we have our diplomas in hand and we land our first job, we’re encouraged to start thinking about our retirement savings goals. In fact, before we even land our first job, we’re guided to ask about benefits — will our new gig contribute to a 401(k) and help us create that nest egg we need when we turn 65? And this is a wonderful thing. The earlier you start to save, the more time compound interest has to work its magic.
But what about our other goals? You know, those goals that are going to roll around when we’re in our 30s, 40s, or 50s? Once we’ve got our 401(k) on lock, it’s time to start thinking about why, where and how to save for those. Because while you absolutely get an A++, bonus points, extra credit, and a cherry on top for saving for retirement, it’s not the only area of your life that requires some saving savvy if you’re going to accomplish all your goals.
As a certified financial planner at SoFi, Lauren Anastasio puts it, there are plenty of life events we hope to accomplish before we retire, like buying a home, starting our own business, having a family, or going on a dream vacation. “Planning and creating strategies to accomplish these other goals will be the step that helps make them a reality,” she says. “By planning for your goals, you can ensure you’re on track to achieve them on your desired timeline, and a good strategy will help you stay focused.”
Here are some of our favorite savings pathways based some big life goals that require big life money.
A dream home
Perhaps it’s on the side of a mountaintop or perched beautifully by the sea. Or it’s a city penthouse apartment with the most Instagrammable views. Though these properties are enjoyable to view on Pinterest, if you want to make them yours, you’re going to need a significant down payment. As a wealth advisor at ALINE Wealth, Gina Grippo-Martinez explains, you’ll want to have at least 10% to 20% in cash, which is a lot — but not impossible.
The trick is to define your free cash flow and then be specific about your priorities, which may require saying no to smaller daily expenses like Starbucks coffee or eating out, or bigger “treat yo’ self” expenses that add up before we know it, like designer handbags, clothing, and impulse buys at Sephora to keep saving for your goal. Does our desire for those things really outweigh the experience of having the keys to the perfect home? Grippo-Martinez asks. Nope.
“Once you define the amount you have after paying expenses, give yourself a monthly allowance of 10% of this number, and invest the balance,” she says. “Be aggressive initially with your savings. You can always dial it back if you can’t survive on your allowance, but at least try, and then adjust.”
A new business
Whether you want to turn your side hustle into your full-time gig, or finally break ground on a coffee shop or a bar of your own, starting a business is expensive. Like, super expensive. And it often requires a lot of preparation. As certified financial planner Stephen Kates explains, you’ll need to plan for the start-up costs and the eventual unknowns and extra expenses that come with being a boss. “This means well ahead of starting, you should be saving as much as you can, siphoning extra money from your checking account into a devoted account for your business and limiting all extraneous costs to pad that account as much as possible,” he says.
Also — and perhaps, equally as important — Kates recommends looking into resources, grants and other assistance from small business organizations. The small business administration has tools and resources for entrepreneurs to explore how to get their venture off the ground, he adds.
Tapping the fountain of youth (Yes, the cosmetic stuff)
Even if you have the world’s greatest health insurance, cosmetic procedures won’t be covered since they aren’t deemed medically necessary. This means facelifts, nose jobs, expensive laser treatments, tummy tucks, botox treatments, etc., will all be out of pocket, and fall under the category of goals you’ll have to save for. These things can add up quickly. Grippo-Martinez suggests looking into a Health Savings Account (HSA) for these types of expenses.
“The benefits of saving through an HSA include tax-free contributions and tax-free interest on interest earnings if the funds are used on qualified expenses,” she continues. “Even when the procedure itself is not eligible to be covered, you can usually use HSA funds on prescriptions related to the procedure such as pain medications and antibiotics.” Plus, You can also roll over unused HSA funds not used in a calendar year into the next year’s account if you decide against a treatment or procedure.
A second home/rental property
Though most people want to become homeowners, many more want to have a lake house, a ski lodge or a seaside retreat for pleasure and, in some cases, another income stream as a rental property. To make this a reality, personal financial advocate and the founder of Strategic Divorce Advisory, Nicole Kubin, suggests to prioritize paying off your debts first, including credit card bills, as well as personal and student loans. How come? A high credit score is critical to obtaining a mortgage. “Maintaining a zero outstanding credit card balance will be of enormous benefit to your lifelong goals and will dramatically improve your credit report. Credit is something to protect over your entire lifetime.”
Also, doing the math can be a definite motivator to save. Kates recommends calculating how much you would save on lodging costs if you owned a home in your most frequently-visited destination rather than renting. You can then use your vacation funds toward the down payment and research the best financing options. “If this is a second home, a home equity loan could provide access to additional cash on top of the rock-bottom mortgage rates we currently have,” he continues. “Just like with any home purchase, plan for the ongoing monthly payments as a part of your saving strategy to make sure those will fit within your budget.”
The vacation of your dreams
Imagine a month in the south of Spain, or spending the entire summer introducing your children to the beauty and flavors of Southeast Asia. Once it’s safe to travel again, you may consider finally taking that long vacation you’ve always dreamt of, but you need to start saving for this goal to make it a dream come true.
Also, remember that you don’t need to pay full price for hotels and flights in order to have a luxury experience, says Ksenia Yudina, Chartered Financial Analyst and the founder and CEO of UNest. “When a cheap flight appears on Kayak, snatch it up. If you see an awesome deal for your dream hotel, put that deposit down. You’ve already made up your mind that you’re taking the vacation, so don’t hesitate,” she recommends.
Where to save for your goals
Here’s the thing — when you need the money to accomplish your goals (whether that’s in six months, or in six years) will determine where you need to stash each dollar you’ve saved. Here are some guidelines:
Mid-term savings: Mid-term savings are monies you’ve set aside to pay for something special that’s a few calendar pages away, so anywhere from three months to a year or two from now. For this money, you don’t need the convenience of a checking account since you’re not going to access the account daily. In exchange for that convenience you’re giving up, you can get a higher interest rate on your money. You’ll keep these funds in a high-yield online savings account — there are tons of options available, just Google for the best rates.
Long-term savings: Long-term savings are savings that you won’t need for three years or more. Time is on your side. And because you have time to let the money sit and do its thing (which is make you more money!) you have an opportunity to earn a higher rate of interest. You’ll keep these savings in a money market account, CD, or an investment account of your choosing (aka, in the market).
READ MORE ON HERMONEY:
- 5 Shrewd Secrets From Women Who Have Fixed Credit, Paid Debt, And Made Fortunes
- Are High-Yield Savings Accounts Even Worth it These Days?
- How Many Bank Accounts Should I Have?
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