Setting Goals for Big Purchases
Sure we are trying to save money but we all have something we really need or want. Sometimes we want really small things like a new pair of work shoes or an iPhone and sometimes it’s big stuff like a wedding, new car or a house. Depending on your financial situation there may not be that much room to go out and buy it. The next best solution to buying it in cash is to save small amounts of money over time or setting a goal for your big purchase.
Once we’re actually saving a little bit of money each month, it becomes really hard to track our progress and how much we have left we have to save. That’s where Goals come in. We’re going to flex our planning ahead muscles, decide what we need, create a long term Goal to achieve it and let the computer track our progress for us.
We’re going to demo Mint.com because it’s really easy and our goal setting will integrate seamlessly with our monthly budgets. There are other great budgeting tools like LearnVest which I’ll detail in another post.
Defining a goal
This should take us all of 15 minutes to do. Before we start though, we need to know a few things. We’re going to make sure our goal is SMART (Specific, Measurable, Attainable, Realistic and Timely). Below are the questions we should ask in relation to a financial goal.
How much money do we need for our goal?
Do we have any savings and if so how much would we like to contribute towards this goal?
When do we need to have everything saved by?
Do we have a special goal account to separate our goal savings?
It’s important you determine exactly how much money you need to achieve your goal. Until you know what that number is, you can never really achieve your goal, right? Be honest with yourself and if the purchase isn’t easily definable than over estimate. There is no point in planning a multi month goal when at the point you are about to achieve success you find out you actually didn’t save enough.
Is this something worth dipping into our savings for? It depends how deep your savings pool is as that will give you flexibility. However unless it’s a major life changing event (home purchase, illness, etc) then it’s probably smart to start from scratch. Just because you have the money doesn’t mean you need to spend it. There will come a time when you may truly need it. If you’re not always dipping into your savings then you can count it being there.
When do you need to have all your savings ready by? If it’s for an iPhone you could always decide to get it at the end of the current month. You can do it, you just need to slash spending, lock yourself in your house, do whatever it takes. If going spartan isn’t your thing then you’ve got to look at a date sometime in the future. How much are you able to save? $100 a month? Then you need to wait 6 months, it’s that easy ($600 total cost / $100 a month savings) .
Finally, do you have a special goal account? While not necessary I find it incredibly helpful in keeping yourself from spending your savings on something else. There are a few awesome checking accounts that I’ve found to do this with as soon as I’m done reviewing them I’ll be sure to add a link here for you guys. Just because you’re about to spend this money doesn’t mean that you shouldn’t make it earn for you in the meantime.
Setting a goal for your big purchase
Phew, a lot of thinking goes into setting a goal. We’re going to create the goal now, we just wanted to be sure that it was something we could actually accomplish.
In Mint, sign in to your account and click Goals up top. From there you’ll see a neat little popup with a bunch of goal choices. Pick the one right for you and lets fill in our details.
Since we already know what we want, how much we need and when we need it by, go ahead and quickly fill in those options. From there Mint will automatically tell you how much you need to save a month. Perfect!
We’re not done yet though. Now click on Budgets, because you are budgeting, right? As you can see, your goal is automatically added in as an expense in your budget. This way, as you continue to do your thing, all you need to do is make sure your budget is balanced and you’ll secretly be saving :)
Tracking your progress
Every month or so you should check in and see how you’re doing on your goal. Did you save enough? More than enough? Hopefully you’re at least on track because you followed the most important step. You made sure your goal was realistic, right?
Since you have at least what you expected to save for the month, be sure to transfer it out to your goal account. We don’t want to accidentally spending it. Things happen, you don’t need to explain yourself, that’s why we budget, track and squirrel our savings away into a separate account. You’ve got three levels of protection which will make it really easy for you to correct course if you do happen to make some mistakes.
Reaping the rewards
Finally, the time has come for you to get what you saved for. It feels good, right? Setting a goal, slowly saving up for it and then achieving it. Go out and be happy. One more thing though, be sure to save money on your purchase! Check out the Need Money Now Strategy where I detail it all out for you.
Have you found success with setting goals for big purchases? If so, please share with us in the comments!