Saving Money? What For?

moneyThere’s so much information out there about how to save money (it’s certainly one of the things I focus on here). It’s understandable; these are hard times and we need to keep as much of our money as we can. Most of us have found ways to cut back on our spending, to shave a few dollars off of our monthly expenses, and to realize even bigger savings by shopping around for auto/life/ homeowner’s insurance or some other large expense. So we’re saving money; but what for?

In my own race to save as much money as possible and to get the best deal on every purchase, I’ve lost sight of what I’m saving for. Yes, we automatically save for retirement through our plans at work, but the savings I’m talking about go beyond that. If I save $20 on an item I purchase, what am I doing with that money? Is it going towards a dedicated savings goal, is it simply building up in my checking account, or is it being sucked away on another purchase I wasn’t nearly as careful about?

What I’m realizing is that if we don’t have savings goals, we’re not maximizing the savings we’re realizing through frugality and comparison shopping. For years we’ve had a very vague “emergency fund.” I came up with a completely arbitrary number for the amount I want to have in there. The problem is, my husband and I have never sat down to discuss what emergencies we’re trying to cover with this account. Our jobs are as secure as any jobs can be in this economic climate. We both work in industries that are highly unlikely to go under, even during rough times. But I also realize no one is immune to job loss. So what’s become important is to identify just what sort of emergencies we’re hedging against so that we can save the proper amount of money in this emergency fund to meet those goals.

Other than our emergency fund, we’re looking more specifically at other savings goals. We know we want to set aside money for another car. Our newer car is a 2006 Toyota Sienna. Our other car is a 1994 Toyota Camry. Since both my husband and I work, and we don’t live in an area with public transportation, it’s likely we’ll need to replace the Camry sometime in the next few years.

We also want to set aside money for our daughters’ college educations. And some money in a vacation fund. Eventually, we’d like to re-work our kitchen, and that, too will require a chunk of savings.

The problem with saving money blindly, as we’ve been, is that none of the goals stand a chance of ever being met. And without solid goals, it’s impossible to maximize the savings we do have.

I’m certainly (and obviously) no financial expert, but it seems to me the next logical steps are these:

Emergency Fund: Determine exactly which emergencies we wish to cover with this fund (things like possible job loss, home and auto repair) and decide on a specific amount to keep in this fund.

Car Fund: This is an inevitable expense. We simply need to determine the amount per month we are able to put towards this goal.

College Savings: We want to help our children with college expenses as much as we can, but we also don’t think it’s necessary to save the entire amount before they graduate from high school. Again, we’ll need to decide on a specific monthly amount to put towards this goal which will likely reside in a 529 account.

Kitchen Fund: This will come last as it is the least necessary at this point. However, once the other savings goals are met, we should be able to ramp up the amount we’re putting into this fund.

This sounds like a lot, but I’m talking small amounts right now. It’s not like we have hundreds and hundreds of dollars left over each month after paying our expenses. But, our expenses are less than they used to be. We comparison-shopped our way into an annual savings of around $600 on auto and homeowners’ insurance, we’re consuming less than we used to, we’re growing some of our own food, we’re making more of the things we use (laundry detergent, some cleaning products, liquid hand soaps) we’re getting rid of a lot of our stuff via ebay and a yard sale. All of these things combined will contribute towards our savings goals.

Also, with the new federal economic stimulus plan, most workers will see a net increase of approximately $50 per month in their paychecks. I’m going to try to make sure this money goes towards a savings goal rather than simply disappearing because of a lack of planning.

What do you think? Do you set savings goals? Do you also find that it’s easier to make progress when you do?

Photo Credit: borman818