The Personal Finance Podcast - How to Save for Multiple Savings Goals (And Reach Them Faster!)

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Starting point is 00:01:31 I'm your host, Andrew founder of mastermoney.com. And today on the personal finance podcast, we're going to be talking about how to save for multiple savings goals. If you have any questions, hit me up on. on Instagram or TikTok at Master Money Co. And follow us on Spotify, Apple Podcasts, or whatever podcast player you love listening to this podcast to it. If you want to help out the show, leave a five-star rating and review on Apple Podcasts or Spotify. And don't forget to check us out on YouTube as well at Master Money on YouTube.

Starting point is 00:02:08 Now today, we're going to be talking about one of the biggest challenges as you start to manage your money. because what you're going to find out is you're going to have to figure out how to juggle saving up for multiple savings goals. And this can be a really difficult thing to do if you don't know how to do it. So today we're going to be walking you through the steps on how to prioritize your goals so that you can figure out, hey, I want to save for a down payment on a house and I want to be saving for retirement. See, I know how hard this can be, especially when you're starting out, you have an entry-level job, you have entry-level income, and you're just trying to figure out how do I hit all of these goals? at the same time. And the honest answer in this situation is that you're going to have to be

Starting point is 00:02:49 a little patient. Because truly, if you think about it, you only have so much money that you can spend. And there's so many things that maybe you want to try to put these goals towards. Maybe it's towards investing, where you want to invest more dollars towards your future so that you can build that generational wealth. Maybe you want a new car because your car is starting to get old and breaking down. You want to save up for that new car and you want to be financially responsible and make sure you're doing the right things and you're trying to avoid debt and things like that. Or maybe you're saving up for a down payment on a house.

Starting point is 00:03:17 This is a big one for a lot of people. Because as housing prices start to rise, your down payment needs to grow larger. Maybe you're saving up for kids college or a wedding fund. Or maybe you're working to pay off debt. Or buy your first rental property. Maybe buy a business or even fund your emergency fund, which is what you should be doing first.

Starting point is 00:03:35 And all of these things take excess cash to be able to do. Or maybe you're trying to fund a move or you're trying to buy furniture for your house, you're trying to do a home remodel. There's so many different savings goals out there. How do you juggle it all? How do you manage it all? Well, today, we're going to be talking about exactly how to do that.

Starting point is 00:03:51 So let's get into it. So the first thing you want to do when you're trying to save for multiple savings goals is figure out exactly how much you can save. So the way you're going to do this is going to figure out, well, how much do I make every single month? What is my income? And then you're going to take that and subtract your expenses. So what this is called, and we talk about this all the time on this podcast, is the gap.

Starting point is 00:04:13 The difference between your income and your expenses is the gap. The money that is left over. And the gap is where wealth is built. So understanding this is one of the biggest revelations that you can do is a very simple concept, but understanding that the gap is where wealth is built and the gap is where savings goals are achieved is extremely important. That is why you want to increase your income as much as possible. so that you can grow the gap over time. And in the short term, you can also reduce your expenses to grow the gap as well.

Starting point is 00:04:48 But as we've talked about it many times before, increasing your income is the major catapult to building wealth. Now, you're going to want to figure out what that gap number is. Now, if you already have a budget, you probably have a good idea of how much extra money you have left over. But if you don't have a budget, there's two budgets that we talk about all the time in this podcast. My favorite one for most people is called the reverse budget.

Starting point is 00:05:08 And the reason why the reverse budget is so incredibly powerful is it's something where it doesn't take hardly any time whatsoever. So with the reverse budget, what you do is you save your money first and then you spend what is left over on your bills. So you take your savings off the top, automatically transfer it over to your savings accounts, and then you spend what is left over on your bills, your wants, your needs, all of those other things. So it's a very simple way where you don't have to sit down every single month and do a line-by-line

Starting point is 00:05:36 in a budget, but you're still budgeting. You're still managing your money and making sure you're controlling your spending. Now, the second way to budget is the standard budget, which a lot of people know about. And we have episodes talking about both of these budgets. I'll link them down in the show notes below. But these are things that definitely check out because the line by line at them budget is a much more efficient way to budget. You can control your money more. You can control your savings goals more.

Starting point is 00:05:58 So if you're hardcore trying to save for a ton of different options here, then this may be the better route to go because you can track it exactly. Now, if you do the reverse budget, we're going to talk about in a minute how you can track it with the reverse budget. Because I know a lot of you out there do the reverse budget because it's the easiest way. It's stress-free. You don't have to worry. You just save the money off the top and chill. That's all you've got to do.

Starting point is 00:06:21 So we're going to talk about exactly how to set that up coming up here. So once you figure out how much you can save, the next thing you want to do is set your savings goals up. So with your savings goals, just make a list of all your savings goals that you have. and you want to write them down. It's very important to write these down because studies show you are much more likely to hit a goal if you actually write it down. We have an episode talking about how to set up your financial goals.

Starting point is 00:06:45 If you haven't heard that episode, I'll link it up in the show notes below. But we have a very specific system on exactly how to do this. And after you write these down, you're going to figure out, hey, how long is it going to take me to actually save up for these goals?

Starting point is 00:06:59 And you want to break these goals out. So long-term goals, mid-term goals, and short-term goals. So examples, maybe a short-term goal is you want to buy new chairs for your dining room. And maybe that's $2,000. But in the short-term, you want to do that within the next six months. So that would be a short-term goal. A mid-term goal, maybe next year you want to go on a vacation to Europe.

Starting point is 00:07:20 That would put into your mid-term goal category. And then long-term goal is you want to save for retirement. You want to build extreme wealth. Those are all of your long-term goals, which typically a lot of times, the long-term goals are the most important goals when you look at it in the grand scheme of things. Now, when you set up these goals, you're going to have short-term, mid-term, long-term, and then we're going to head over to the next step. So the next step is you're going to prioritize your savings goals.

Starting point is 00:07:47 Now, a lot of people struggle with how do I prioritize my savings goals? Well, if you haven't heard our episode talking about the stairway to wealth, and I'm going to talk about it a little bit here, but the stairway to wealth was created so you know the order to put your money in. Because a lot of people ask, well, hey, should I be saving first or paying off debt? Should I be funding my emergency fund or investing? And all of these are very valid questions. And knowing the order to put your money is incredibly important.

Starting point is 00:08:13 Now, the thing that Stairway to wealth does not talk about is if you want to hit additional savings goals, how do you hit goals like your down payment on your house? How do you hit goals like saving up for furniture? How do you hit goals like saving up for your next car? And those are extremely important goals to actually go after. So we'll talk about that here and how you fit those into the stairway of wealth. So the stairway to wealth works like this. The first thing you want to do is you want to build up a safety net.

Starting point is 00:08:39 So your safety net is not your emergency fund, but it's your pre-emergency fund. Now, if you already have an emergency fund, then you don't have to build out the safety net. But all the safety net is, if you're starting from zero, you haven't never managed your money whatsoever, then you want to make sure that you have the safety net in place. Now, how much should you save up in your safety net? What the amount would be is to cover your deductibles. So if you have car insurance, if you have homeowners insurance, if you have medical insurance, whatever the highest deductible is out of those three, that's how much this should be.

Starting point is 00:09:10 The reason why we do this is because if something happens and an emergency happens, you have the money there to at least cover the deductible if an emergency happens in any three of those areas in your life. Then you have the money just there. And the money's there allows you to be stress-free so you can move. on to the next goals and make sure you're hitting those goals. The next thing you want to do is get your employer match. Your employer match is free money. So that's why we do that next before we go to the next step, because you want to make sure

Starting point is 00:09:38 you're getting 100% on your return and your employer match is what is going to do that. Number three is you're going to pay off high interest debt. Now, paying off high interest debt is extremely important because debt is a pants on fire emergency. So what you want to do is make sure you get rid of any debt above, 5%. So that's what we classify as high interest debt. Is any debt above 5%, 7, 8, 9, 10% debt? Or if you have credit card debt, you're looking at 15, 20, 25, 30% interest rates. Those are emergencies. And you need to get rid of high interest debt third. And then the next step is your emergency fund.

Starting point is 00:10:13 So your emergency fund is the protection system against your wealth. It allows you to protect yourself against life. So you want to aim to save up at least three months expenses, but three to six months is the long-term goal and then over time you can build it up as large as you want to. Now we're getting into investing. So the next step you want to do is we talk about the Roth IRA and the HSA as your next steps because these accounts have tremendous tax advantages to building wealth. Now, if you want to get into real estate investing, this is also the place that you can do that.

Starting point is 00:10:42 It's in this step. Step five is real estate investing. In addition, making sure you're hitting your retirement goals is the number one thing. But after you hit these retirement goals in between this step and the next step, step, you can start to hit these savings goals. And that's why this is incredibly important to understand. Because your retirement comes first. Your money needs to be going towards your retirement so that you can actually stop working one day. But then in the future, you also want to start to hit your savings goals. So if buying a house is incredibly important to you short term,

Starting point is 00:11:11 then maybe you want to be saving for your house after this step. Or if you want to be saving up for your vacation or anything like that, these are quality of life decisions. And building a rich life is what money is there to do. Spending money on things that. bring you value is what money is there for. So making sure you have a balance here is incredibly important. You're going to hear people say all the time, don't spend your money on frivolous things. Well, that's absolutely not true because you want to spend your money on things that bring you joy. That's what money is there to do. Otherwise, why are we working so hard? You want to spend your money on things that bring you joy, but you want to have that balance and make sure you're hitting these savings goals and these

Starting point is 00:11:47 retirement goals so that you can hit retirement and do the things that you enjoy. There's a balance here and everybody can find this balance. So the balance is in between these steps, because the next one is to max out your pre-tax retirement accounts. Now, if you like the 401K more than the Roth IRA, more power to you, because it's still a tax advantage account, you can still get tremendous results with the 401K or a 403B or your SEP IRA.

Starting point is 00:12:10 It doesn't matter what it is, but you can still get amazing results. Or if your income is extremely high, then you want to be contributing here instead of the Roth IRA. So both of those are extremely important. And then number seven on the stairway to wealth is invest in real estate, small businesses, all of those things, so they're the wealth accelerators. Then number eight is prepay for long-term expenses. So this is the point where you can save for your kids' college.

Starting point is 00:12:34 After you fund your retirement, you can start saving for your kids' college because you take care of yourself first, then you can fund your kids college because there's no loans for retirement, but there are loans to go to college. Now, you don't want to start your kids off life and debt. You don't want to start your children's life off in debt. I understand that. But you have to take care of. yourself first before you put the oxygen mask on your kids.

Starting point is 00:12:57 This is also where you can start building a wedding fund or investing for your children or saving for extremely long-term goals that are outside of your retirement goals. And then the last one is to pay down low interest debt. So any debt below 4% would be the last step that you can pay off. But making sure you're taking care of that retirement and you can hit those savings goals so you can enjoy your quality of life are extremely important. Now that's just a really quick rundown of the stairway to wealth. We have a really in-depth episode that goes way deeper than that.

Starting point is 00:13:25 So make sure you check that out because that is one of the most important episodes that this podcast has created. Because the order to put your money in, and we deep dive on each of those, so make sure that you check that out, and I'll link it down below. So lately, I've been noticing how fast things are changing at home. The kids are growing like crazy, clothes don't fit anymore, and routines are changing. And it just hits you. Life is expanding.

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Starting point is 00:17:07 Now, can you do it with one savings account with a reverse budget? Absolutely. You could do it with one savings account, but you're going to have to make sure you keep track of it on an Excel sheet. And if you think that you're going to keep track of every single dollar on an Excel sheet, then go for it. But if you want it to be easier, then just, set up multiple savings accounts.

Starting point is 00:17:23 And one of the cool things about setting up multiple savings accounts is you can name them. So you can see your progress. You can set up goals in a lot of things. So some of my favorite savings accounts, I will link them in the show notes below because it's incredibly important to make sure you set it up in the right type of savings accounts. Now, there's a bunch of pros, but the biggest pro to having multiple accounts is that you can monitor your progress. It's easy to just look at it.

Starting point is 00:17:45 All your savings counts are names. You can say, hey, here's my down payment. I'm halfway there. Here's my goal to save up for my home remodel. I'm 30% of the way there. And it motivates you to continue pursuing that. But another pro is if you can find a bank that has new account balance bonuses, then that maybe another pro.

Starting point is 00:18:01 If you have a bank that says, hey, you put $2,000 in an account, we'll give you a $150 bonus. Well, that's another perk because if you have five accounts opening up, well, that's 500 bucks. Now, they may have limits on that. But that's just another pro that you can do with the multiple savings accounts. But truly, the reason why you're doing this is just to keep it organized. That's the main thing.

Starting point is 00:18:20 Don't fret on trying to find a bonus or anything like that. It's a waste of your time. But if they have that, it's just an extra perk that you can get after. Now, if you like simplification, because I am all about simplification when it comes to your money, and you think multiple savings accounts is just going to murky the water, then just keep track of it in one account. But the key here is if you have multiple savings goals, you have to make sure that you're on top of it and keeping track of it.

Starting point is 00:18:43 The budget helps you do that. But if you don't have the line by line on a budget, then you're going to have to take a no tap out or you're going to have to keep an Excel spreadsheet. to do that. Now, which type of savings accounts are best? We've talked about this a couple of times before. We talk about saving for your short-term cash, but the best ones are a high-yield savings account is my number one favorite, a money market account is my second favorite. And then if you have a long-term savings goal, that's going to take you three years or something like that, then you can look at CDs as well. But if the interest rates on CDs are the same as a high-yield

Starting point is 00:19:10 savings account, then you're much better off just going to a high-yield savings account and leaving the money in there because it's much more liquid inside a high yield savings account. So that's incredibly important to understand as well. And like I said, our favorite banks are linked in the show notes below. So make sure you check those out if you're looking for, hey, which banks do I actually open this up in? The next thing. So now that you have all your money that you're going to save and you have your goals

Starting point is 00:19:33 set up and you have all your accounts set up, the next thing you're going to do is automated. Now, automating your money is one of the most powerful things that you can do with your money. We talk about that a number of times in this podcast, but automated. your money is so incredibly powerful. So what you're going to do is you're going to go into your bank account and you're going to figure out, hey, how much money am I going to put into this account? Then you're going to set up automatic transfers and then you're going to set up how much money is going to actually go into that account.

Starting point is 00:19:58 And you're going to set the date each and every month that it's going to go into that account. So when you do this, every single time that you do this, maybe you set it up on the 15th of every month because you get paid on the 15th, for example. So every month on the 15th, your $300 that's going towards your home remodel is going to go right into the home remodel account. You don't have to think about it. You don't have to do anything. You don't have to lift a finger. And what this does is over time, your accounts are just going to start to build up. And you're going to be thinking about other things. You're going to focus on increasing

Starting point is 00:20:25 your income. You're going to spend time with your family. You're going to spend time with your hobbies, instead of having to go into your bank account every single month and start transferring money and wasting time. Instead, you have it automated. And what happens here is that eliminates the issue of willpower. Because willpower is what you have to have in order to go in there and transfer every month. that if you miss a month or two, then you fall behind. This is going to help you accomplish your goals that much faster. So make sure you're automating your money and automatically transferring the amount of money

Starting point is 00:20:55 that you want to save up into these separate accounts. The next one is you want to recalculate when new goals arise or old goals are met. So for example, let's say that you actually hit your goal of saving up $2,000 to buy new furniture for your living room, for example. Well, once that goal is met and you still have that income coming and you've got to recalculate, well, where am I going to allocate these dollars so I can hit my next savings goals? Maybe they go to retirement and you increase the amount that's going to retirement every single

Starting point is 00:21:22 month. Or maybe they go to your goal of saving for a down payment. Or maybe they go towards your goal of your home remodel. It doesn't matter what it is, but making sure that you recalculate when the goals are met or if you have a new goal. So maybe you come up with a new goal. Something happens in your life and you say, hey, my car is not doing that great. I need to get a new car next year. Well, all of a sudden, you're going to have to reduce the amount of money that you're calculating towards other goals so that you can start saving up for that new car. And so recalculating is a give and take game here. So you're going to have to reset your goals and kind of recalculate exactly how much you want to give to each goal. But once you get the hang of this and once you figure out how to do it correctly and just realize that you're going to be patient, then recalculating these goals becomes much easier.

Starting point is 00:22:06 Now, the fun way to do it is obviously to hit a goal and then recalculate with extra money where you're going to put it. But things happen in life, and you're going to have to recalculate and reduce spending in some areas to make sure that you're hitting those goals. And the last one is just to understand that you have to be patient. I know we all want to hit these goals as fast as humanly possible. I know that's what we all want to do. But income is a finite thing. And your expenses can only be reduced so much. And the only option you have left is to increase your income.

Starting point is 00:22:34 So if you want to hit your goals faster, the thing that I would recommend is focus your time on increasing your income. So if one of your savings goals is maybe saving for a business that you can start, that may be your best place to put your money because it's going to increase your income over time as you start to build up that business. Or maybe you want to start a side hustle or you want to find passive income streams. Well, check out our YouTube channel. We've talked about passive income streams in the past and you can look into some of this stuff and figure out, hey, how can I increase my income so that I can hit these goals faster?

Starting point is 00:23:06 And if you can't increase your income, if it's something you're not interested in doing, you'd rather live your life, then just be patient. Be prepared to wait because patience is a key when it comes to saving for these multiple savings goals. I know you want that house right away and you want to get to that down payment right away. But if it's not your number one priority, then it's better to be patient than to jump right in and make a bad financial mistake. So listen, I hope this helped you guys figure out how to save for multiple savings goals.

Starting point is 00:23:34 If you have any questions at all, hit me up on Instagram at Master Money Co. And don't forget to follow us on Spotify, Apple Podcasts, or whatever podcast player you love listening to this podcast. And if you want to hop out the show, leave a five-star rating and review on Apple Podcasts or Spotify. And don't forget to check us out on YouTube as well at Master Money on YouTube. Thank you guys so much. I appreciate each and every one of you.

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The Personal Finance Podcast - How to Save for Multiple Savings Goals (And Reach Them Faster!)

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