Under the Median: Reach Your Fiancial Goals! Follow These Three Steps!

I just wrote about using a snowball to knock out consumer debt. But, what do you do with all that leftover money now that you've paid off your creditors? How about starting a savings snowball?

What is a savings snowball?

I really like Dave Ramsey's analogy, comparing a snowball picking up speed as it careens downhill to our strategy for paying off debt. So, I decided to keep it around and use it to envision saving for short, medium, and long-term goals.

Step 1: Make concrete goals.

https://www.dropbox.com/s/02u6fha4neu84cm/Goal%20Planning%20Sheet-1.pdf?dl=0

I made this handy form into a FREE downloadable document for you! Click on the photo or here to access it!

It is vital that you keep a written list of short, medium, and long-term goals.If you are living on a modest income, you don't get a "pass" on goal planning. In fact, if anything, it is even more important that you have specific, concrete goals.

Here are some items to consider:

Are you working on an emergency fund?

Will it be 3 months or 6 months equal to of all your budgeted expenses?

I like an emergency fund which is equal to 6 months of "emergency budgeted expenses".

Take into consideration how solid your job security is. If your job is volatile, then you need closer to 6 months rather than 3 months.

Once you determine your savings goals, write them all down.

Brainstorm and dream. You can always go through your list later and delete items, which don't make the "cut". But, why not dream big and write them all down anyway?

When goals are broken down into smaller monthly chunks, they don't look so unattainable.

Don't get rid of your master goal list! You may be able to re-add items at a later date that don't make the "cut" this time. It's nice to have as a reference the next time you do your brainstorming process. We make a new list once every 12 months. But, depending on how soon you begin to meet goals, you may find that you need to do it either more or less often.

Step 2: Make a chart.

Put it right in front of your eyes, ideally somewhere you can see it daily. I'm a real fan of charts.

This is a pie chart that I recently unearthed while looking through my budget folder. It was from several years ago and showed each of our short-term goals: wisdom tooth removal, braces for our son, college fund for two of our sons, and car replacement. The chart covered a period of time from January 2012 to December of 2018. I had just $300 each month to put toward these goals.

I began at the bottom of the chart, with funding wisdom teeth and braces. We began by dividing up the allotted $300 per month, putting $100 a month in the "wisdom teeth" account and $200 a month toward the braces. In six months, we had funded the wisdom teeth removal. That additional amount was then put toward the next goal, braces. The chart showed how much we put toward each goal each month and what date we would reach each goal.

Here are the advantages of funding goals in this fashion.

It works like a debt snowball in reverse.

It's a savings snowball.

Defines concretely the amount of time it should take you to meet each goal.

You can mark your progress on the chart.

Starts with a smaller, quickly attainable goal first, so that you build "steam" and stay encouraged in the process.

As you meet one goal, you can put that additional amount each month toward the next goal on the list.

Step 3: Make it automatic.

You never miss money that you don't see. Have the bank deposit a certain amount every month into a separate account for each goal. Then don't touch it until the it's completely funded and ready to spend.

We have done this for years with our car replacement fund. We generally keep cars about ten years before replacing them. So, as soon as we bring a new one home, we begin making preparations for replacing it. We divide the total amount which which we intend to spend by the number of months we want to save for it. Then, we have our investment company, withdraw that amount from our savings account every month, placing it in a moderate risk account. We are not limited by our investor as to the number of separate funds we can have. Right now we have three, all funded monthly.

As soon as you meet one goal, move to the next. Just like a debt snowball, you'll gain momentum as you reach each goal.

Your turn!

What about you? Have you found a method that works for you in saving toward short, medium, and long-term goals? Tell us about it in the comments section.