Setting and sticking to a budget is easier when you have goals you’re working toward. For young professionals, retirement can feel so far away, making it harder to stay motivated to save. You don’t only need to save for major goals. You can also allocate funds or save for vacations, hobbies, entertainment, education, and taxes. Start with this list of things to save for and create a budget and savings plan to help reach your savings goals and create financial freedom.
Why is saving money important?
Saving money for certain things can allow you to achieve financial security and stability. Try to plan ahead and save for big and small expenses so you don’t have to take on debt and get stuck with high-interest rates. Saving ahead of time can help you build discipline and practice good financial habits while avoiding debt.
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14 things to save up for
Things to save for range from a car to hobbies. Setting up savings goals as part of your monthly budget can make achieving these goals easier. Below is what you should include in your savings plan and why.
1. Emergency fund
An emergency fund can cover unexpected expenses, including medical, car, house, or other expenses. Financial experts usually recommend three to six months of expenses in emergency savings.
2. Homeownership and homemaking
To buy a home, you might need to save for a down payment and closing costs to secure the property. You’ll also need to pay for a mortgage, insurance, maintenance and repairs, furniture, house appliances, gardening tools, equipment, and a steady stream of other expenses.
Most financial experts suggest budgeting up to 30% of your total income for home expenses. Consider also setting aside 1% to 2% of the home’s purchase price each year for routine maintenance projects.
3. Vacations
Vacations can be important times to relax, rejuvenate, and build meaningful bonds and lifelong memories.
How much you choose to save for vacations depends on the type of vacations you want to take, your overall budget, and other financial goals. However, you should never take vacations that you can’t comfortably afford and it’s not recommended to go into debt to pay for a vacation.
4. Car
Aim to save to purchase a car and pay it off within a few years to avoid high-interest costs, as interest payments can add up on new and used cars. In addition to savings for basic payments, consider annual car repairs and maintenance.
In general, you’ll want to keep your transportation costs low but no more than 10% to 15% of your income. This includes car payments, insurance, and fuel. For example, if your monthly income is $7,000, plan to spend up to $700 to $1,050 each month for car payments, gas, maintenance, and repairs. If you’ve paid off the car in full, this number could be considerably less, allowing more for savings each month.
5. Hobbies and recreation
Hobbies can add up. From sports and fitness clubs to knitting, camping, pickleball, golf, or dancing, consider memberships, lesson costs, and any other hobby-related costs. Even if you choose a free hobby like hiking, you might need gear. If you want to purchase larger recreational vehicles like an RV or boat, you’ll need to save for the purchase plus repairs or maintenance.
Hobby and recreation budgets vary widely by family. Some families count recreation in their entertainment budget, while others allocate funds specifically for activities. Look at your budget and interests to set realistic goals. Then look for lower-cost options of the same activities to enjoy your hobbies while saving more.
6. Gadgets and electronics
Phones, laptops, cameras, earphones, speakers, and other technology all add up. Create a technology budget to save for these larger technology purchases as needed.
Computers can cost $800 to $2,000 or more, while smartphones cost $300 to $1,000 or more. Unless you need a computer or phone for work, consider whether you need a high-budget version or can save on simpler technology.
7. Phone and computer applications
Any subscriptions you need for personal and business use, such as Microsoft, Google, or editing software, can add up. Make sure to save annually or budget enough each month for monthly subscriptions. Expect to spend $10 to $300 monthly on applications, depending on how many you use and individual costs.
8. Entertainment
Saving for entertainment means more fun activities and makes sticking to a budget easier. Entertainment can include going to concerts, movies, the theater, or local events. It can also include sporting events, video games, board games, or streaming entertainment subscriptions.
9. Personal development
Personal development includes any form of investment in yourself, from formal higher education to language lessons, cooking lessons, books, singing, dancing, or anything else you love. Investing in yourself can open new career opportunities, new connections, or bring more happiness into your life.
Some people keep a set percentage of their total income for personal development (like 5%) while others choose to take a course each year or regular lessons.
10. Annual bills and payments
Annual payments include insurance plans, homeowners insurance, property taxes, tuition payments, car registrations, gym memberships, and other bills you can pay annually. Saving for annual bills each month can ensure you have enough before the bills appear.
Home expenses should be included in the 30% you allocate for homeownership; car registration will fit into a transportation budget. All other payments, including tuition, gym memberships, and optional subscriptions, should be weighed against your total budget and future goals.
11. Retirement
Saving for retirement is one of the most important steps you can take for long-term financial freedom. Research tax-advantaged investment accounts, maximize employer-matched 401(k) accounts, and consider whether you want to invest in a brokerage account. Aim to save 20% for long-term saving and investment goals. You can speak with a financial adviser to create a diversified, risk-balanced investment plan for your financial goals.
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12. Health expenses
Health expenses are one of the areas families often get caught without enough savings. The best way to save with health expenses is to get good health insurance that covers all types of procedures you might need. Obtaining health insurance can help you save on medical costs in the long-run. In the meantime, it’s recommended to take good care of your health to avoid complications. This includes eating healthy and maintaining an active lifestyle.
13. Taxes
With each paycheck, you’ll need to put aside money for taxes. Use an online tax calculator to estimate your total income tax obligation. Your tax bracket depends on your total income. Remember to calculate both federal and state tax obligations based on current annual income. If you’re self-employed, you’ll also need to put aside self-employment taxes and pay quarterly estimated taxes.
14. Starting a business
If you want to start a business as a side hustle or transition your career, consider saving ahead of time to cover startup costs. Save a little extra each day or each month to create a cushion as you launch the business. Of course, if the business requires a larger budget, you can also look into getting a small business loan or a personal loan.
How to save money in 3 simple steps
Here are three simple steps to help save more money this month.
1. Create a budget
Create a budget that outlines your income and expenses. Start by tracking your expenses and categorizing them into essential and nonessential items. Then, determine how much you can save each month by subtracting your expenses from your income.
The budget should include all essential expenses, including housing, transportation, utilities, food, healthcare, insurance, savings, and extras like hobbies or entertainment expenses.
2. Cut back on unnecessary expenses
When you want to save more, consider a no-spend challenge or reducing unnecessary expenses. This includes reducing dining out, canceling unused subscriptions, or finding cheaper alternatives for certain products or services. Whether you cut back expenses entirely for a short time or regularly review all extras, this step can save anywhere from $10 to $1,000 per month, if, for example, you eat out regularly.
3. Automate your savings
Plan to pay yourself each paycheck by transferring funds to savings before allocating money to other expenses. Set up automatic transfers from your checking account to a separate savings account. Doing this will help you stay consistent and disciplined with your saving habits.
Setting savings goals
Whether you earn $30,000 or $300,000 per year, prioritizing savings means you’ll have money when you need it most. While some types of savings are essential, others can start to afford you extra vacations, a new hobby, or a work-optional lifestyle. Start small, surround yourself with supportive people, make saving automatic, and keep building to watch your savings grow. Before you know it, you’ll be able to set, and achieve, even bigger goals.
FAQ
How do you stay motivated to save for your goals?
To stay motivated to save for your goals, get support from family and friends. You can also set both short-term and long-term savings goals to get the satisfaction of reaching each goal.
How often should you review your savings goals and progress?
Consider reviewing savings goals and progress every three months. Review your income, budget, and discretionary spending to adjust savings goals as needed.
Should you save money in a regular savings account or invest it?
Plan to save an emergency fund with three to six months of expenses in a high-yield savings account. Then, consider investing the rest in a 401(k), individual retirement account (IRA) or other retirement account, and any extra savings in a brokerage account.
