“Don’t tell me what you value. Show me your budget, and I’ll tell you what you value.”
It’s a quote from Joe Biden, commenting on how he viewed John McCain’s political stances based on his actions as a senator voting on budget issues. The budget issues in question run into the billions of dollars, but the quote still holds true for the individual. Budget decisions on a national scale might feel intangible to the ordinary person, but what could be more significant than the decisions that you make with your own life and the subsequent values that these translate to?
Being organised and intentional with the actions in your life gives you more time and freedom to do the things you value more. Since we often give up time in exchange for money, saving money naturally overlaps with being organised, and saving money means that you have more choices.
In 2020 I chose to focus on my personal finances, and setting goals was key to how I achieved success.
Identify the why behind your money saving goal
If you have a clear idea about why you want to save money in the long-term, it’s much easier to make good decisions that forgo short-term outcomes that don’t help you. Your money saving goal might be how you achieve another goal, such as saving up for a holiday so that you can fulfil your value of experiencing travel. Or it might lead more directly to the why, such as saving money or getting rid of debt so that you can be financially secure. If you have already defined your values, start by looking at them and see which would be made easier or achieved more fully if you had extra funds.
Make your money goal SMART
Not all self-improvement is well suited to specific goal setting, however saving money aligns really well. It’s measurable, can be tracked and forecasted, and there is a clear cause and effect between income, expenses and savings.
‘Pay off my $10k student loan by the end of next year, by making additional repayments of $600 per month’ is much better than ‘get out of debt’.
SMART goals are Specific, Measurable, Achievable, Realistic and Timely. Be specific with what you want to achieve, based on your why in the first step. This might involve breaking down the end-goal into a number of mini-goals.
Make your goal measurable with a dollar figure that you want to save. Even if your goal is really long-term, like saving for retirement, you should calculate exactly how much you need to save so that you can measure how well you are tracking towards it.
Is your goal actually achievable? If everything goes exactly according to plan, is it possible? Have other people done it? Then question whether or not it is realistic for you. Is the required lifestyle adjustment realistic? And your earning potential? Have you factored in any realistic emergencies and buffer?
Finally, make it time-bound. Calculate what you need to save within each time period (like each payday or each year), and figure out the date that you will achieve your goal. It can be very motivating to have this date in mind, or if it feels like it’s too far off for the effort you might need to revise your goal.
Build a budget
I use the zero dollar method, but I create a budget for the whole year. This helps me with tracking those longer term financial goals as I know exactly how much I can save over a certain period of time. I can also see what the impact is of deciding to go on holiday, and see the long-term benefit of taking my lunch into work an extra day per week. Each pay-day the first thing I do is put aside whatever savings amount I have budgeted for.
After setting some realistic budget categories, I help myself make informed decisions in-between pay-days and avoid going over my allocated budget by tracking expenditure. I use the Colorful Budget App to set categories and record expenses. I like it because it’s really quick to add spending immediately, and it has coloured progress bars that show you how close you are to maxing out each budget category as well as the overall budget. This help me understand exactly what the impact will be if I decide to get takeaway on Friday after a hectic week. Rather than making the decision blindly, I can assess my budget and decide whether or not it’s worth going over or if I can make cuts in another area to compensate.
It’s also really easy to get a summary of what you spent in each category. During 2020 I kept a record of exactly what I spent in each area, which has given me lots of insight into what I thought I valued, and what I actually value!
Look for the ‘boulders’ that can save money in the long term
My project plans involve tasks that are either ‘boulders’ or ‘pebbles’. A lot of money saving is about the pebbles, the small everyday actions that slowly but surely get you heading towards your goal. you should also look for the boulders, the larger discrete tasks that once complete will continue to save you money or put you in a better position in the long term.
‘Boulder’ tasks for saving money are things like checking your interest rate for better deals, cancelling subscriptions that are no longer needed and researching less expensive alternatives for items. Depending on the ‘why’ behind your money saving goal, you should also look at your savings methodology. Saving to travel or make a big purchase might be fine to just funnel cash into a savings account, but something broader like achieving financial security would be better served through investments.
Go for money saving sprints
If your end goal is that important, you might decide that you are willing to try some more extreme frugalism to help you get there. Or, you might be very close to achieving a financial goal and want to see if you can get there even quicker by doing a sprint to the finish. The good thing is that this doesn’t have to be forever, and you might find some habits that are easier to maintain than you thought.
- Biden’s article on McCain’s policies, featured in the NY Times
- Our journey towards financial independence from Little Wild Tales – a great little summary of FI (Financial Independence) as a financial goal
- Paying off your debt does more for your mindset than it does for your finances, Hipster Finance guest post on Dividend Cultivator
What are your financial goals? Share your story in the comments!
I am not a financial professional. This blog anecdotes my personal story and should not be interpreted as advice.