By Jason Epps, CFP®, CRPC®
It seems like no matter how much money you make, there’s always more things to spend it on. Whether it’s home renovations, an upgraded car, retirement savings for yourself, or tuition for your children, it can seem like staying on track to achieve your financial goals is a challenging task. Oftentimes, no matter how much income people generate, they tend to spend much, if not all, of what they earn. So how do you attain your savings targets while saving for multiple goals? Here are some tips to help you get started.
Step 1: Define Your Goals
Defining your goals is half the battle. The best goals will be SMART:
- Specific: The more you can identify exactly what you’re saving for, the easier it will be to work toward it.
- Measurable: As much as possible, try to identify how much your financial goal will cost. Do the research to figure out what you need to save so that you’re able to see tangible progress along the way.
- Attainable: Make sure your goal is realistic and achievable. This might require some self-reflection or reevaluation of your priorities.
- Relevant: Ask yourself which goals align with your core values. Remember that your finite assets will be split amongst your seemingly infinite list of wants. The more you can scale back your list to what is truly relevant, the quicker you’ll be able to achieve each goal.
- Timely: Identify the timeline for each goal so that you can prioritize which ones need to be addressed first.
Step 2: Prioritize Your Goals
Now that you have a clear idea of what you’re saving for, you can get to work prioritizing. Before you begin, it is highly recommended that you have a solid financial foundation in place first. This includes planning for emergencies and opportunities through a healthy cash reserve fund as well as having proper risk management tools in place using insurance.
Beyond those two standard priorities, you can then assess which of your other goals are most important to you. Typically, the goal with the shortest timeline tends to be the top priority, but this might not always be the case
Step 3: Categorize Your Goals
Next, group your goals into time-specific categories, each with a different asset or account tailored for that time horizon.
- Short-term goals are those that will be accomplished within 2 years. Money saved toward these goals should be in easily accessible accounts like high-yield savings accounts or money market funds. You won’t get the highest return, but your money will be there when you need it.
- Intermediate goals are between 3-10 years and should utilize certificates of deposit or short- to intermediate-term bond funds. These assets will offer a greater return, but they are not as liquid and should only be used for goals you will not need to fund right away.
- Long-term goals are those that are 10+ years away. The best way to invest for these goals is to focus on growth-oriented assets, which generally includes a large allocation toward stocks. Since the stock market can be volatile, it’s important to make sure the money you invest will not be needed anytime soon. Over time, your money will grow, but short-term volatility can cause your portfolio to fluctuate.
Step 4: Start Saving
The final (and perhaps most challenging) step is to actually start saving toward your various goals. There is no one way to go about this, as it is highly individualized to each person’s specific circumstances.
Start by determining your discretionary cash flow, and how much of this you can dedicate toward your goals. Each person’s situation is different; however, a good starting point is to aim to save 20% of your pre-tax income. Next, allocate the appropriate percentage of that total amount to each goal, ensuring you’re positioning your savings and resources efficiently. If your cash flow doesn’t allow you to fully fund each of your goals, allocate your savings to vehicles that can be effectively applied toward multiple goals. Automating these contributions is a great way to stay consistent in your savings.
To stay on track, over time as you receive bonuses or pay raises, consider implementing the 1/3 rule. One-third of your pay increase will or should be set aside for taxes, 1/3 can be used to enhance your lifestyle or keep up with inflation, and with the remaining 1/3, immediately establish a system to save for longer-term goals.
Step 5: Talk to a Wealth Advisor
Building wealth and saving toward multiple financial goals can seem intimidating at times. As your income grows, so do your expenses, and it can seem as though you aren’t making the significant progress you should be. At KFA Private Wealth Group, we can help you prepare for the future by prioritizing and achieving your financial goals. Email jepps@kfapwg.com or call 301-305-8875 to schedule an appointment today.
About Jason
Jason Epps is vice president and private wealth advisor at KFA Private Wealth Group, a registered independent advisory firm founded on the premise of providing sound financial and investment advice. With over 15 years of experience, Jason possesses the unique knowledge and expertise necessary to provide his clients with the most applicable and beneficial financial guidance that helps them find confidence in their financial future. Jason is a CERTIFIED FINANCIAL PLANNER™ (CFP®) practitioner and a Chartered Retirement Planning Counselor℠ (CRPC®) and believes that a financial plan is only as strong as the advisor’s understanding of the core values and beliefs of each client. He serves a diverse range of clients, from young accumulators to pre-retirees and retirees, including business owners and professionals in a variety of fields.
Jason is passionate about giving back to his community and volunteers with various organizations in the D.C. metro area. He also has coached youth travel and AAU basketball since 2009. When he’s not working, you can find Jason spending time with friends and family, traveling, trying out new restaurants, and cheering on local D.C. sports teams. To learn more about Jason, connect with him on LinkedIn.
