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Here’s how to reach your financial goals.
how to reach your financial goals

Here’s how to reach your financial goals.

Saving money is hard. Immediate gratification is a great thing, and we often forget that even small amounts each month can add up to a more significant sum in no time.

We’ve talked about how to budget your income to free up some money for your savings goals, and about the importance of a rainy day fund.

If you think you’ve got these parts of your personal finance plan covered, now is the perfect time to talk about your financial future. And by financial future, I mean the things on which you’re going to spend money in the future.

We’re going to talk about how to save up for expensive items and where to keep your money to get the best returns.

Picking Your Battles

Chances are, we all like to buy things that cost more than they should. Be it clothing, gadgets, collector’s items, good wine, or that overdue vacation. Even the more “essential” things in life can come with an expensive price tag. Think about buying a fridge, a car, or even wedding rings.

These sort of expenses usually don’t come as a surprise (and if they do, they should be covered by your emergency fund!), so you should be able to create a savings plan for them.

I think it’s best to start by picking your battles. In this case, we’re talking about picking only one or two expensive goals at a time. I’ve found that it is a lot easier to stay motivated when I choose just one big thing, like a new kitchen, instead of many smaller things, like that new jacket and the couch and that trip to Copenhagen and also those limited edition sneakers that are dropping next month. You see where I’m going with this.

If you need help deciding if you really need an item, or if it’s worth it to save up for it, you can try to put things into perspective for you.

Are you saving for a need or a want?

This is actually a valid question for every purchase you make. I’m not saying that one is more important than the other. No, wait. Actually, I am. If you have to decide between buying new tires for your car so you can get to work in the winter, and upgrading your home-cinema, the decision should be pretty straight-forward.

I admit that the lines can get blurry.

Let’s talk about things like a gym membership or even getting a personal trainer for example. Staying fit and healthy is something that all of us should probably invest some time in.

But what about money? Starting a new gym membership is a new financial responsibility. Even more so when you’re going for a personal trainer. So why not start small and see if you’ll actually stick to it? See it as an experiment: If you can stick to going for a run twice a week for a whole month or two, investing in a gym membership might not be a bad idea.

Too often, people think having a financial investment in something will help them stay motivated. What actually happens is that they will lose interest anyway for whatever good or bad reason, but are now stuck with the costs of it.

I’m sure you, too, know someone that’s still paying for their gym membership but hasn’t actually set foot in there for the past three months. Not only are they wasting money, but they are probably also feeling guilty about it. That’s a lousy investment.

Having said that, you should also allow yourself to plan for spontaneity. “Wait a minute, isn’t this an oxymoron?” First of all, kudos for using words like ‘oxymoron.’ Second, if you think about it, it’s not. What’s really happening here is you being a responsible budgeter.

We’ve talked about this already in this post about budgeting, but here’s a quick recap:

Nothing is more restrictive when it comes to your finances than ignoring your reality. It’s perfectly understandable for you to lose your motivation because of an inflexible financial plan.

The simple solution is to budget for the moments where the want is bigger than the need. We both know it’s going to happen, so why not be prepared for it?

Reaching your savings goals

Once you’ve decided on the things that you can no longer live without, you should start budgeting for it. Cut the cost of your big-ticket items down to monthly installments and put that amount aside as soon as you get your income.

Where you actually put your money is up to you. If you’re an excellent budgeter and know how to stick to your budgets, you could just leave it on your checking account and know that it will be save there. I would, however, recommend to open up a savings account and create a standing order to automatically transfer the desired amount of money into this separate account. Not only will this keep you from spending the money “accidentally,” but you might even receive some interest.

Depending on the type of your savings goal, you might want to look into the different types of savings account.

Savings account, money market account, or fixed deposits?

When it comes to choosing the right account for your savings, there are a few things you should consider. Let me explain the pros and cons of the three most commonly used types of savings accounts.

Savings Account Traditional savings accounts remain the most well-known options and safest places to put your money. If you save your money in this kind of savings account, it will accrue interest over time. So, unless you withdraw some or all of your savings, the balance will only increase.

The interest rate of your savings account depends on the bank you choose, and the type of savings account you use. Online Banks, for example, may be able to offer more competitive interest rates due to their lower overhead costs. Some banks provide different savings account for various stages and events of your life, like an account that you can use to save up for your driver’s license.

Another significant benefit of a traditional savings account is their liquidity. This means that you can withdraw your savings immediately when you need them.

Moreover, traditional savings accounts tend to be insured by an insurance corporation up to the maximum amount allowed by law. This is a valuable feature, as the government will step in to replace funds you may have lost should a bank or credit union fail.

On the contrary side, traditional savings accounts tend to yield low-interest rates, compared to other types of accounts. They are one of the least rewarding ways to save money, usually only earning somewhere between 1% and 2% per year.

Even though you can access your savings at any time, some savings accounts have monthly withdrawal limits. You should read the fine print and talk to your bank to make sure that you can access specific amounts of your savings when you need them.

Money Market Account A money market account combines the best features of a savings and a checkings account: you receive interest on your deposits and can easily access your money.

Compared to a traditional savings account, a money market account might offer interest rates that can be twice as high. Some money market accounts also provide a fixed interest rate for a specified period of time. And like in a traditional savings accounts, your money is insured up to a certain amount depending on the country you live in.

Looking at the disadvantages of a money market account, you might find that some banks require a minimum balance to open this type of account. Compared to a traditional savings account, this minimum balance can be quite high and may result in fees if your balance falls below the minimum.

You might also encounter transaction limits, which might only allow you to make payments from your account for a limited amount of times per month.

Fixed Deposit Account A fixed deposit account is a type of savings accounts in which money is deposited for a stated period of time, and a set interest rate is paid at the of that period.

Fixed deposit accounts typically yield the highest interest rates of any savings account. The actual interest rate usually depends on the amount of money invested in the account and the period chosen.

Depending on your will-power, a fixed deposit account can help you achieve your savings goal more efficiently, as you won’t be tempted to withdraw your savings prematurely for whatever reason.

On the other side, having your funds “locked up” can also be a huge drawback — especially when you didn’t create a rainy day fun and have to face some financial emergency.

Fixed deposit accounts also bear a higher risk, as fixed depositors will be one of the last to be paid off in case of a financial crisis. It might be a good idea to remember that higher interest rates are usually tied to higher risks.

Which type of savings account is the best for me?

Well, I can’t decide for you.

As you know by now, every type of account has their pros and cons, and you should take some time to consider them before deciding on an account that works for you.

Maybe setting some precise savings goals can help you decide on the right account. How much money do you want to save until when? How much interest do you expect and what level of risk are you willing to take?

Zuper Blog

Money management should be smarter, easier and more fun. Save money and take control of your finances with the free Zuper App for iOS and Android.

Paul Niklaus
Paul is a marketing manager at @ZuperBank. He's in love with marketing, standup comedy, and storytelling. In our blog, he shows you how to do the most with your money!
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