This is the first post in a series called Saving With Purpose: Living a More Intentional Financial Life. In this series, I plan to highlight a number of specific savings goals my family has identified we would like to achieve over the next few decades.
We have all heard of SMART goals. You probably know the acronym by heart…Specific, Measurable, Achievable, etc. Identifying savings goals is no different. As I mentioned last week when first introducing this series, my family has been pretty good at saving money since getting out of debt. However, we find ourselves trying to pile up money for no specific reason, other than we recognize saving money is the smart thing to do.
This wasn’t enough for me. I want to set very specific savings goals and then track them to completion. When we accomplish the first savings goal, we’ll move to the second. When we accomplish that goal, we’ll move on to the next, and so on. Think of it as a “savings snowball.”
Of course, some goals will run concurrently, particularly the big, long-range goals such as retirement and college savings plans for the kids.
To kick things off, my wife and I sat down to identify our short-term savings goals. That is, things we hope to accomplish in the next year or two, or have already saved for, but don’t want to tap for competing priorities.
Short-Term Savings Goals
Goal 1: Save $25,000 Cash for Emergencies. Any financial planner will tell you this is the cornerstone of any solid savings plan. After all, rainy days are inevitable. Whether you are covering the costs of a new roof, a new transmission, or covering expenses during a layoff, the emergency fund is a must-have savings goal.
Most also agree that 3-6 months of expenses is a good starting place when determining how much one should save. For us, our goal amount is around eight months of expenses – we added two additional months since we are a one-income family.
Goal 2: Save $10,000 Cash in an Opportunity Fund. The problem with emergency funds is that they are only supposed to be used in an emergency. Life throws plenty of opportunities, too, and we want to be prepared for them. In our first 12 years of marriage, we had to pass on many opportunities because we were carrying debt and had little savings. We like to think of this fund as our personal line of credit – there to use and replenish as opportunities arise.
One real-life example of these types of opportunities is blogging conferences. Previously, the attendance fee, transportation and lodging made attending these types of events difficult. Now, if the right opportunity came along, I could attend such an event, which could lead to making valuable connections for building Frugal Dad.
Goal 3: Save $10,000 Cash Towards a Car Replacement Fund. Let’s face it; our cars won’t last forever. Their demise is inevitable, no matter how well we take care of them. So why not begin planning for their replacement now, rather than turning to banks or auto finance companies.
In our case, my truck will likely die first since it is several years older than our family vehicle, and has about 100,000 miles more on the engine. At current prices, I could buy a replacement truck for about $8,000 – $10.000. Accounting for a little inflation, with the hopes that my current truck lasts a few more years, and accounting for the remaining cash value of my current truck, that puts the replacement truck cash need at about $10,000.
Goal 4: Save $5,000 for Home Improvement Projects. Our house was built in 2004, so fortunately very little is in need of upgrading. However, there are a few small home improvement projects we are interested in doing around the exterior of our home, such as installing gutters, paving a patio (or building a deck), and planting more mature trees on the property.
We’re also considering hardwood or laminate flooring in the kids’ rooms as they both suffer from allergies, and carpet seems to hold in the dust and pet dander making their symptoms worse. A few thousand dollars should cover these expenses, but we believe in saving the cash first before upgrading the home, even if other lines of credit are there.
I’m happy to report that Goal 1 is accomplished, and we are working on Goal 2 (the Opportunity Fund). We’ll save for goals 3 and 4 at the same time, with the hopes that our outside home improvement projects will be funded by late spring or early summer, and our new trees can be planted in the fall.
Next up in the series, we’ll take a look at college savings for our kids, our next big savings priority and something we know we are behind on. I’ve done some preliminary research for the costs of tuition for both kids, and the numbers are staggering. I’ll share the specific numbers with you, and our plan for reaching the goal in the next decade (even less time for our oldest – yikes!) just in case they don’t land full scholarships. Hey, a frugal dad can dream, can’t he?