Have you ever said to yourself “I’m going to buckle down and start saving money?”
Did you get "really serious" about it? Writing out a budget - maybe even downloading the Mint app.
And then almost immediately went back to spending recklessly and wondering where everything went at the end of the month?
A lot of us have.
Saving without a goal is ineffective. Our brain needs a reason (a compelling one) to give up short-term or instant gratification (buying new Louboutins today) in exchange for a longer-term reward (a trip to Greece at the end of the year) or an even more distant goal (retiring in 50 years).
I started out my career saving the standard 10% for retirement, but I didn't get good at saving beyond that until I set a financial independence goal.
I had to plan and visualize: “In 10 years, I want to retire from my corporate career and travel around the world, only working if and when I want to, on projects that excite me, while being able to maintain a high-standard of living, including high-investment parenting.”
From there, I had to determine how much money that required, and work backwards to map that to a monthly savings goal. I did this while simultaneously working on strategically increasing my income.
Now, those systems are largely on auto-pilot. I use sub-accounts in my brokerage to save for smaller goals like:
My brokerage makes this super easy - they let me manage big one account and direct money into different sub-accounts that have different asset allocations, goals, and timelines.
The point is: Goal-based investing, or saving with the end in the mind, is the key to sustainability in your savings plan. Robo-advisors like Betterment even use this type of behavioral science to design their software. When your money has a clear target (e.g. a honeymoon in the Philippines or a wedding in Paris) instead of a vague one (saving…because I should???), you’re much more likely to stick to the plan.
What are some of your big savings goals?
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