3 Strategies to Create Realistic Savings Goals

When it comes to creating savings goals, having a plan is half the battle. That includes focusing on the right tools for success and tracking your progress along the way. In fact, by simply writing down your goals, you have a 42% higher chance of achieving them.¹

It doesn't matter if the goal is to buy your first home, start saving for retirement or take a family vacation. Listing your goals is essential because it will provide you with a road map for your journey. Here are some savvy strategies to help you set (and succeed at achieving) realistic savings goals.

1. Set SMART Financial Goals

“SMART" stands for Specific, Measurable, Achievable, Realistic and Time-bound. First proposed in 1981 by management consultant George T. Doran, the SMART goal-setting system remains one of the best strategies for achieving an objective because it forces you to be concrete, focused and accountable.²

Here's how to set SMART goals:

• • Specific: Start by being precise about your goals. What is your ultimate objective and how will you achieve it? Specific goals (“I will save $800 every month for five years in my high yield savings account") instead of vague, broad ones (“I will save for a down payment on a house") are much easier to work toward. You can use our savings goal calculator to help set SMART financial goals.
• • Measurable: Measuring your goals allows you to track your progress. For example, you could use the bucketing system and park that $800 per month for a future home into a separate “house fund," enabling you to easily track your progress (and ensure you don't spend your savings).
• • Achievable: For SMART goals to work, they must be achievable and attainable. How do you plan on saving that $800 per month in the house fund? Push yourself to save as much as you can without stretching yourself too far.
• • Realistic: Based on your current age and stage, are your goals realistic? For instance, if you're fresh out of college and juggling student debt, saving $800 every month for five years may not be realistic. Perhaps it would be more realistic to save $300 per month over 10 years. Consider your current financial obligations and circumstances when setting your goals.
• • Time-bound: For a goal to work, you need a deadline. Without one, you'll never truly be working toward your goal. For example, you might say you will save $19,200 in two years. If you haven't reached that goal by your deadline, you'll need to make some adjustments.

Example of a SMART financial goal

Setting SMART financial goals is a great way to reach your short-, medium- and long-term objectives. If you're looking for SMART financial goal examples, here's a breakdown of how it could look:

• • Specific: I want to save $3,000.
• • Measurable: I will deposit $250 each month into my savings account.
• • Achievable: I will review my budget and look for areas where I can save. I'll set up automatic transfers to my savings account so I'm always working toward my goal.
• • Realistic: My disposable income after paying for my monthly essentials is $600. Setting aside $250 a month is realistic but may require some adjustments to my spending.
• • Time-bound: My deadline is 12 months from now. That means I need to save $250 a month to reach my goal.

As you can see in this SMART financial goal example, creating a realistic savings goal is easy if you use the SMART method.

2. Prioritize Financial Needs vs. Wants

This can be tough for some people, but successful saving also hinges on prioritizing needs versus wants. While this may sound simple in theory, it can be challenging because it can be easy to miscategorize some expenses, and difficult to give up all the little extras that make life easier or more enjoyable.

“Needs" refer to basic expenses you need to function at work and in everyday life, such as:

• • Rent or mortgage payments
• • Utilities
• • Daycare
• • Groceries
• • Health care
• • Cell phone/internet
• • Transportation

“Wants" are optional expenses that make your life more enjoyable and comfortable, but you can technically live without them. A few categories may include:

• • Dining out
• • Entertainment
• • Travel
• • New clothes
• • Subscription services

Generally, you'll want to set your savings goals based on needs first. For example, if buying a new car is on the horizon, you could set a SMART goal to save for that big dream. When you establish savings goals to line up with your needs, you're essentially paying yourself first.

Tips to help prioritize

Distinguishing between needs and wants can be tricky because the two categories can sometimes blend, and the differences aren't always obvious. To prioritize your needs when budgeting, consider the following tips:

• • List your needs and wants. Once you have the list in front of you, you can determine what's actually essential.
• • Consider cutting back on some of your needs. While paying for your monthly fixed expenses (such as rent or utilities) is nonnegotiable, there may be ways to save on essentials. Finding a cheaper place to live, switching to a more affordable mobile phone plan or shopping at a bargain grocery store could make a difference.
• • Cut the extras. Any wants you can cut from your budget are good for your bottom line because that's additional money you can save.
• • Avoid lifestyle creep. Instead of increasing your spending when you get a raise, don't change your spending habits. That extra money can go right into your bank account.

3. Create a Budget—and Stick to It

Without a budget, saving is nearly impossible because you'll have no idea where your money is going. That said, once you establish your wants and needs, building a budget will be a bit easier.

To create a budget, track your spending for a month or two. Take note of everything you spend, from public transportation to that gift you bought for your friend's birthday. Once you have this information, you can create an accurate budget.

At the top of your budget, list your income. Follow that up with your needs, and then list your wants below it. Obviously, you'll need to spend less than you make so you're never in the red.

It's also important to prioritize your savings. Consider listing your savings goals as one of your needs. You can add a regular savings deposit as a line in your budget or a bill you always pay. By doing this, you'll always be focusing on your savings goals.

Helpful budgeting tools and apps

Creating a budget is simple, but some people want a little assistance. Fortunately, there are some great tools and apps that can help:

• • Microsoft Excel: A simple spreadsheet is arguably the easiest way to create a budget.
• • Mint: This app syncs to your checking account, credit cards, investments and more, making budgeting easy.
• • YNAB: You Need A Budget (YNAB) uses the zero-based budget system, so every dollar you earn is assigned a job.
• • 50/30/20: Many people swear by the 50/30/20 rule, where you split your income into three categories: 50% for needs, 30% for wants and 20% for savings.

Vivid Crest Bank Can Help You Save

Creating realistic savings goals doesn't need to be complicated. By setting SMART financial goals, creating a budget and prioritizing needs over wants, you can reach your life goals quicker than you think.

Start off on the right foot by opening a Vivid Crest Bank High Yield Savings account. You can easily set up automatic savings goals with this account, and your deposits will earn a competitive interest rate. Alternatively, if you're looking to earn higher returns risk-free, consider a Certificate of Deposit.

 

Barry Choi is an award-winning personal finance and travel expert. He regularly appears on various shows in Canada and the U.S., where he talks about all things money and travel. His website, Money We Have, attracts thousands of visitors daily who are looking for the latest stories on travel and money.

 

LEARN MORE: 5 Reasons Why People Miss Their Financial Goals

 

 

Sources

¹ Marie Forleo, Sept. 13, 2019, "Self-made millionaire: The simple strategy that helped increase my odds of success by 42%" CNBC,  accessed Feb. 16, 2023.

² Chrissy Callahan, Jan. 19, 2021, "SMART Goals: Examples, tips and more to help you get started," TODAY, accessed Jan. 19, 2023.