Deciding how to prioritise different savings goals can be overwhelming, but financial experts recommend ordering them by urgency.
Saving money sounds straightforward - set cash aside for a future purpose - but in reality, people often face competing savings priorities. We want it all: the travel, the house, the flush savings account. So how do we figure out which savings goals to put first, especially when we're working toward so many things at once?
Retirement is a long-term game and time is on your side, so even if you start with something very small, the more time you give yourself to work on it, the better off you'll be
"You're also still trying to live and have fun and not eat cup noodles every day,'' says Al-Nesha Jones, a certified public accountant and founder of US-based ASE Group, a full-service accounting, tax and advisory firm. Saving is further complicated by the fact that we're currently facing economic uncertainty, higher prices on everyday items and a tumultuous stock market.
Figuring out your savings priorities isn't easy, but these strategies can act as guideposts:
Put your emergency fund first
Consider how you felt the last time you couldn't cover an emergency, Jones says. "If it gave you major anxiety, keep that feeling in mind when you prioritise." In other words, create your emergency fund before everything else, because it's so critical to financial security.
"Now more than ever, people are understanding the importance of a rainy day fund," said Eric Maldonado, certified financial planner and owner of US-based Aquila Wealth Advisors. "It's good fundamentals to have cash in case stuff starts costing more."
Next, prioritise retirement
"Retirement is a long-term game and time is on your side, so even if you start with something very small, the more time you give yourself to work on it, the better off you'll be," Jones said. "If you keep pushing retirement off, we blink and now we're scrambling."
Thinking through the worst-case scenarios of not saving for different goals can help underscore the importance of funding retirement accounts. Noah Damsky, principal of US-based Marina Wealth Advisors, says you should save for the categories with the most severe consequences first - and retirement tops that list, since no one wants to be impoverished in old age. "Running through those scenarios helps crystallise what's important, Damsky said.
Now more than ever, people are understanding the importance of a rainy day fund
Decide what you want in the near term
This next category of savings priorities is complicated, because you must determine your near-term goals. They might include buying a home, traveling, moving to a new city, starting a family or something else entirely.
Dale L. Shafer II, certified financial planner and founder of US-based Life Moves Wealth Management, recently moved with his family to that area, and his near-term goal is to save up to buy a home there. The pandemic spurred many people to make major lifestyle changes, he says, and as a result their near-term savings goals shifted.
"Sometimes we reset expectations and sometimes we achieve more than we thought," he said. It's important to check in on your savings progress at least several times a year so you can recalibrate when needed.
Jay Zigmont, certified financial planner and founder of US-based Childfree Wealth, works with clients who don't have and aren't planning on having children. He says many of them are focused on major life shifts, such as starting a business, moving overseas, traveling or taking a sabbatical from work.
"You might not be able to do everything at once, but you can do most things over time," added Zigmont.
To keep all of these goals straight, Maldonado suggests opening separate savings account for each one and giving it a nickname.
Online, high-yield savings accounts tend to offer higher returns than those at traditional banks, and you can set up automatic deductions from your current account or salary. "It's positive inertia that keeps the money going where you want it," he adds.
You can always make changes later. "Just get in the habit of saving, and then you can go back and add other goals," Jones says.
Just get in the habit of saving, and then you can go back and add other goals
Enjoy life along the way
As important as it is to save for all of those priorities, so is enjoying life today. Don't wait until you have a fully funded retirement to put money toward items that bring you joy, Jones warns. That's why she's saving to buy a Tesla, which she hopes to purchase by the end of the year.
Maldonado and his wife contribute a set portion of money to a family fun account. "We drain it every quarter. It's guilt-free spending for the family," he says, and goes toward things like camping trips, museums or parties. With their savings safely stored in other accounts, it's spending the whole family can feel good about.