Previous Post: Monthly Net Worth Update: July 2009
Do you have a Purpose and a Plan for your Money?
I like to save money; I always have. Even as a kid I remember saving up all the money I earned for a long, long time. I still like to save today. And since we paid off the remainder of our student loans last year, we’ve been saving a lot of money in various accounts.
But why am I saving?
I tend to fall into the trap of just saving money for the sake of saving it (now there’s a lot worse things you could do with your money, frankly). I feel, however, that you should really have a purpose for the money you save (and I don’t usually do a good job of this). Remember, money is only useful when it is spent. Amassing a huge fortune doesn’t really do you or others in this world much good if you hoard it all for yourself and die with a huge bank account balance.
The genesis for this post came as I was preparing my latest monthly net worth update. I usually look at the overall net worth increase or decrease as a rough gauge of how we are doing financially. While doing that the other day, Istarted to think, “that’s all well and good, but will I have enough money to buy a car the next time I need to get one?”
Different goals require different strategies
The point that I’m trying to get across is its not enough to just stash a bunch of money in a 401k or IRA or savings account or whatever. There are many different goals for which you are saving money right now such as your next car, a home, college, vacation, retirement, starting your own business, etc. And you will (at least you should) use a different strategy to save for each of them. For instance, saving for next year’s vacation (a short-term goal) probably involves monthly deposits to a CD or savings account while preparing for retirement (assuming it’s a long-term goal for you) probably requires a diversified mix of stocks, mutual funds, bonds, real estate, etc.
Set specific savings goals and track them
So in my last net worth update post, I mentioned that my net worth increased 4% this past month…but so what? Would I be able to get new siding on my house if I wanted to? What about remodeling our master bath? It is very important to set goals for your savings and monitor your progress toward each goal individually. This obviously makes it easier to track your progress, but I think it is also highly motivating as well. Creating a goal and seeing yourself step closer and closer to that goal can be very powerful in helping you to continue down the path.
Think about it, it’s always easier to save for something like an upcoming vacation because it’s a short term and attainable thing. Longer term and bigger goals require much more effort to stay motivated while pursuing. Try to make your saving as tangible as possible by creating each as its own specific goal and tracking progress towards it.
It doesn’t matter how you do it, just do it
There are a few methods you could use to accomplish this goal setting and saving. Personally, I have a bunch of sub-accounts opened at my online savings account of choice (EmigrantDirect). I have automatic transfers setup each month to drop money from my checking account to each individual savings account. This works well for me (I love automation) as I accomplish the saving and it’s very easy to see my progress by viewing my account balances whenever I need to. You could just as easily track your saving using an application like Quicken, a spreadsheet, or good ol’ paper and pencil!
Save what you need and give the rest away
In summary, save for what you need to save for (retirement, college, etc) but don’t just save for the sake of saving (that’s usually called hoarding). If you already have more than enough for all your short and long term needs (Congrats! Do you have a blog I could read?), then think about giving a bit away to someone who needs it more than you do. How will you know if you already have enough….well, that’s why you need a plan and a purpose (weren’t you reading the post!)
Related Posts:- November – Living our First Dave Ramsey Cash Flow Plan...
- Financial Peace University Lesson 10 – From Fruition to Tuition...
- Financial Peace University Lesson 2 – Relating With Money...
Related posts brought to you by Yet Another Related Posts Plugin.
If you found this post informative or entertaining (or both), please subscribe to my RSS feed or subscribe via email to receive future Borrow From None posts.
Thank you for visiting!
Comments
One Response to “Do you have a Purpose and a Plan for your Money?”
Leave a Reply
Subscribe to Borrow From None
Affiliates
-
Social Networking
Links of Interest
What is RSS?
Great post! I love the last paragraph on giving some away, there are so many charities and so many ways to help others that it seems incredibly selfish to save more than you need. I really enjoy reading your blog, thank you!