Saving with Purpose: Setting S.M.A.R.T. Goals (2024)

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Saving tends to be easier when you have a certain purpose in mind: Saving for an emergency fund, your first house, your retirement, a child’s college education, or even a trip. The important thing is for your goals to be specific, measurable, actionable, realistic and time-bound, or SMART.

To develop a sound plan, these goals must have both a timeframe and a dollar amount that is MEASURABLE. Once you have listed and quantified your goals, you need to prioritize them. You may find, for example, that saving for an emergency fund is more important than buying a new car.

Whatever your objective, be SPECIFIC. Figure out how many weeks, months or years there are between now and when you want to reach your goal. Divide the estimated monetary goal by the number of weeks/months/years to make it ACTIONABLE. That’s how much you’ll need to save each week/month/year to have enough money set aside (MEASURABLE). Ask yourself, is this REALISTIC? Remember, a goal is a dream with a deadline.

Pay Yourself First
Set a savings goal. For example: Save and invest five to 15% of your gross annual income. This can be much harder than it sounds. If you’re currently living paycheck to paycheck without any real opportunity to save, begin by tracking all monthly expenses (fixed versus discretionary) and then creating a solid spending plan/budget.

Once you figure out your fixed expenses versus your discretionary spending, you can then determine which discretionary spending can be redirected into a savings account. For many people, a good way to start saving regularly is to have a small amount transferred automatically from your paycheck to a savings or money market account. We make it easy at Heritage Grove with the “Pay Yourself First” option for Early Pay direct deposits. Just choose the percentage on the pop-up that appears once you receive your deposit.

Maintain an Emergency Fund
Make sure you have at least three to six months’ worth of expenses saved in an emergency fund to see yourself through difficult times. Keeping some of your savings liquid (example: high-interest savings or money market account) will ensure that you can always get to your money quickly.

If you have trouble deciding how much you need to keep on hand, begin by considering the fixed expenses you have in a month, and then estimate all the expenses you might have in the future (in the next three to six months, including car insurance, medical insurance deductibles and other expenses). Generally, if you spend a larger portion of your income on discretionary expenses that you could cut easily in a financial crisis, the less money you need to keep on hand in your emergency account. If you have dependents, you’ll want to keep more money in your emergency fund to offset the greater risk.

Pay off Your Credit Card Debt
If you’re trying to save while carrying a large credit card balance at, say, 19.99%, paying off the debt is a guaranteed return of nearly 20% per year. Once you pay off your credit cards, use them only for convenience, and pay off the balance each month. If you tend to run up credit card charges, get rid of or put away the credit card and go back to using cash, checks and a debit card.

Take Advantage of Tax-deferred Investments
If your employer has a tax-deferred investment plan like a 401(k) or 403(b), use it. Often, employers will match your investment. Even if they don’t, no taxes are due on your contributions or earnings until you retire and begin withdrawing the funds. Tax-deferred savings means that your investments can grow much faster than they would otherwise. The same is true of IRAs, although the maximum amount you can invest annually in an IRA is substantially less than what you can put in a 401(k) or 403(b).

Sometimes just getting started is the hardest part, so break up your research and actions into bite-size pieces. Look at your spending, your monthly expenses, create a budget and determine your savings goals. Remember – you can adjust all of these categories as you proceed.

For additional financial articles, check out our financial fitness resources. Questions? Call 503-588-0211.

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