A friend of mine was losing sleep the other week, concerned about his financial future. Not the “it’s what I’m thinking about as I drift off” kind of losing sleep, but more like the “I wake up every two hours thinking about it” kind of losing sleep. Suddenly, a few days later, he was sleeping like a baby. The secret? No, not the lottery, and inheritance, or a huge tax refund. My friend had given his savings a name, or more accurately, several names. And it made all the difference.
We’ve spoken here before about having financial goals – things that you’re planning and saving for that you know you’d like to make happen (or that might happen to you – we call that emergency savings for that very reason). Saving money is great, but sometimes we have a tendency just to save, and never connect our saving to the goals we’re aiming for. When we connect our goals with our savings, we can see how the buckets are (or aren’t) filling up – and, most importantly, when a bucket is full so we can get going on the next one. I’ve seen some folks with more savings than financial goals (it would be nice, right?) who are worried they don’t have enough until they name their savings.
So, you don’t need much for this one, but here’s how to do it:
- Start with your list of financial goals. These are usually things you know you’re going to need money for (saving for a down payment on a house, an emergency fund, paying off debt, or for the next car or vacation). Once you’ve got them listed, put them in order of priority. If you need a nudge, put emergency savings (usually three months of living expenses) at the top of the list. Knowing you have this set aside helps you sleep way better.
- Add up what you have in savings – money that you have set aside and can get to easily. This does not include money that’s in your retirement plan at work or anything that costs money to get at. It does, however, include, any buffer in your checking account and those US bonds Aunt Maple gave you 10 years ago that you have yet to take to the bank.
- Start assigning your savings to your goals. Simply go down your list of prioritized financial goals, and use the money you’ve saved to fill each “bucket”. If you find that you’ve run out of money before you’ve run out of goals, go to Step 4. If you find that your money has made it all the way through your goals, congratulations! You’ve got more than enough savings to meet your financial goals. Now you get the fun of thinking through what else you could use that money for, or if you want to think generously, how you can give it away!
- Sometimes, it won’t seem like your money has stretched to meet all of your financial goals. This should be some extra incentive to work your budget (see the two-parter on budgeting) so you can assign more of your money to saving toward these goals (and filling those buckets!) Don’t get discouraged, but do get to work saving! Also, take a step back from your goals and make sure they are reasonable. There comes a point where we start saving for stuff at the expense of living and giving. Previous examples I’ve seen: saving for the “second” next car after already fully saving for the next one, trying to save enough money to be unemployed for 10 years, and being 28 years old and saving for a 50th birthday bash. At some point, we have to remember that over-saving will rob us of the ability to enjoy life as it comes and will also rob us of the opportunity to be generous – we’ll always convince ourselves there’s something else to save for. Ask some close friends to help you think through this if you’re having trouble.
- Lastly, consider setting up one of your buckets for “generosity”. It’s one thing to give money to our church or friends as small needs come up, but sometimes we may feel led to make a big dent in something really important – helping someone adopt a child, start an orphanage in a foreign country, or helping a family through a big loss. If you’ve got some money set aside for these big circumstances, you can experience some really cool generosity! It’s also a great stretch for your heart to save for something like this without knowing specifically what it is yet – give it a shot, I promise it will be worth it.
So name those savings! Most of our worry and fret regarding our savings is because we don’t know when enough is enough. So name each bucket and then at least you’ll know. Even if you don’t seem to have enough saved, knowing what the situation is will help you focus and rest in the knowledge that you have a plan (we call that a budget).
As always, feel free to shoot us questions or other helpful tips! Make yours a generous city!