Smart Saving

Thinking about buying that first car?

Paying for college? Purchasing a home? Having enough money for retirement? Whether your goals are short-term or long-range, achieving them starts with careful planning.


The Importance Of Saving To Meet Financial Goals

Look first at your goals. Are they…

1. …realistic and attainable?
For example, when you start looking for a university, will you have enough money to go to an ivy league school? Maybe not. They’re expensive. But you can get a good education without going to Harvard. Do some research comparing the cost of various schools with the kind of education they offer. Some very good schools are also affordable.

2. …specific – yet flexible
Maybe your dream is to take a year off after you graduate and travel around Europe. Graduation is in four years. How much will the total trip cost? Have you taken into account factors like hotels, meals, and sightseeing? How will time affect how much you have to pay to fulfill your dream? When you budget for that trip, don’t forget to add in the effects of inflation. The airline ticket that may cost $1000 today may be $1200 in four years. On the other hand, are there compromises you can make to make the trip more affordable? There are budget airlines, for example, and also less expensive routes. Travelers to China, for example, have learned that it’s far cheaper to fly into Macau than Hong Kong, even though the two cities are only an hour’s jet boat trip apart.

3. …taking into consideration your other needs? 
Don’t forget to take into account all the demands on your savings. When you graduate from university, you may want to buy a new car and set yourself up in an apartment. Will you have enough money to do both. You may have to make choices — drive the old clunker around for another year, perhaps, while you set yourself up in an apartment, or find an apartment near work so you don’t need a car.


Accomplishing Your Goals

Accomplishing your goals takes more than just good planning. It takes work and perseverance.

1. You may need to learn more about investing. 
If your goals involve large sums of money or require bigger returns, your investment decisions may require an understanding of the various types of investments and their risks and rewards. It pays to learn as much as you can about investing, so you can make wise, educated decisions.

2. Put your goals down on paper. 
It’s often been said, “If you fail to plan, you plan to fail.” Make a written record of your goals and monitor your progress. If you have long-term goals, set milestones. For example, if you want to save $15000 for the down payment on a house in three years, you will need to save an average of $5000 per year. Check at the end of year one that you actually have saved that $5000. If not, by year three you’ll have a lot of catch up work to do, if you managed to reach your goal at all.

3. Don’t Wait to Save 
The sooner you start, the faster your money will increase. Think you can’t afford to start saving right now? Look at how waiting just one year can affect the total amount. Say you put aside $50 a month at 4% compound interest for 40 years. Your total deposit is $24,000 but your balance will have grown to $58,355. What if you wait one year to start saving? Over 39 years, your total deposit will be $23,400 — only $600 less — but your balance will be just $55,480, or $2,275 lost in compounded interest. Before you say, “I can’t afford to save”, look at your expenses now. Is there something you can spend less on or cut out to put that money aside for you goal?


How Fast Will Your Money Grow?

Everyone wants investments that grow quickly so you can reach your goals sooner, so it’s a good idea to compare how much each kind of investment will earn. There’s an easy way to calculate the return on investment.


Rule Of 72

If your investment earns interest at a fixed annual rate, you can use the rule of 72 to determine how fast your money will grow.

Number of years it will take for your money to double = _____72______ 
interest rate.

For example, say you are considering an investment that yields (gives) you 6 percent interest a year. To find out how long it will take to have twice as much money as you invested, divide 72 by 6. The result is 12 years to double your money.


The Best Way to Reach Your Goals

Remember the tortoise and the hare? Investments are a lot like that. Some, like the hare, are very flashy and promise a big return. But they carry a lot of risk and can let you down, especially in today’s bear economy. Others are like the tortoise. The interest they earn increases your capital slowly, but you are less affected by changes in the market. In an economy like we’re facing right now, where the market is constantly changing and the value of many investments is falling, rather than increasing, it’s a smarter idea to go with the tortoise. Start with a steady plan of savings that offers a guaranteed return. The promised results may not look as impressive, but in the long run, you’ll be surer to reach the finish line a winner.