Setting savings goals for your money ranks high on the list of New Year’s resolutions. That’s not surprising. Knowing that you have money saved up for those unplanned medical bills and other emergencies can be immensely comforting. The mistake most people make however is in just listing it as a “˜resolution’ and leaving it at that. As with most New Year’s resolutions, this too tends to get forgotten two to three months into the year.
If you want to save money in the coming year, the key is to set savings goals for 2022. Don’t let the thought of setting financing goals put you off. It isn’t as daunting as you may think. The steps we’ve outlined below on how to set savings goals for 2022 will guide you along. Yes, it may take up some time but it’s time well spent. At the end of your goal-setting exercise, you’ll have a clearer vision not just of your goals but how to achieve them. Most important of all, you will have set a firm foundation for financial success going forward.
How To Set Savings Goals For 2022: A Step-By-Step Guide
Step 1 – Assess Your Current Financial Situation
Taking stock of your current financial situation is a critical first step to setting savings goals. You can’t determine the best steps going forward unless you know where you stand financially right now. Assessing your income, debt commitments, and recurring expenses helps you see where to stand right now and determine what habits you may need to change to attain your financial goals for 2022. This in turn will help you set a foundation for more realistic savings goals for 2022.
For example, your goal for 2022 may be to buy a new car. But do you have sufficient room in your budget to save enough to buy a car in 2022? This may not be possible if you already have a large amount of debt to pay off. If that’s the case, you may be better off putting any extra money towards paying off your debt earlier. You may think differently and that’s okay. As you work through the steps, you will be able to tweak and adjust your priorities and goals.
Step 2 – Determine What You Want to Achieve In 2022
Remember, no two people have identical savings goals. Your goals for 2022 will depend on a number of factors, mainly your life stage, financial commitments, and lifestyle. An individual with young children will have radically different savings goals from someone who has grown up children. Someone who is working will have completely different goals from someone who is approaching retirement.
When setting savings goals, stay focused on your needs, priorities, and financial commitments. Don’t compare with anybody else and don’t be swayed by their ideas and goals.
When determining what you want to achieve, start with the most essential financial goals. Paying off your debts and building an emergency fund should be your topmost priorities. Clearing your debts earlier can help you save a substantial sum in accrued interest, which is reason enough to prioritize it. As for the emergency fund – you’ll be glad you have one when you need money to cover any type of emergency.
Savings goals shouldn’t be only about paying the bills though. It’s nice to also have aspirational goals to look forward to. They’ll help you stay motivated. Aside from these essential goals, take a closer look to determine if you have room in your budget to save for goals such as a down payment on a new home or car or perhaps a short vacation.
Step 3- Set Up a Budget Based on Your Income & Debt Commitments
In steps 1 and 2, you figured out where you stand at the end of 2021 and where you want to be in 2022. In this step, you’ll break it down in actual numbers.
Mapping out your monthly income and expenses will help you better understand how much you can reasonably expect to save every month. This will help make those savings goals more concrete.
- If you have a steady income, use that as your benchmark. If you’re a freelancer with variable monthly income, use your average monthly income as the benchmark.
- Add up all loan payments you need to make every month. If you have a fixed rate loan or mortgage, the payments will stay the same every month. If you have a variable rate loan, the loan amount may fluctuate from one month to the next. In this case, take an estimated monthly loan payment.
- If you’re renting a home, add the rent as a recurrent payment.
- Write down the monthly average of all other essential payments such as utilities, groceries, travel, and medicines.
- Deduct all monthly expenses from your monthly income. That’s how much you can potentially save every month without having to make any lifestyle changes.
Setting up your income and expenses tracker will allow you to see your savings in concrete numbers. Instead of thinking in vague terms of “I save a few hundred dollars a month”, you will now be able to see exactly how much you save a month, whether it is $100 or $900. This can make a huge difference to your mindset and what you do next.
Step 4: See What Expenses You Can Cut Back On
You now have a better idea of exactly how much you can potentially save after taking care of all mandatory expenses. However, it’s almost impossible to only spend on essentials and nothing else. You will inevitably spend on miscellaneous purchases like clothes, dining out, movies, cable subscriptions, and other non-essentials. These may seem like small expenses and while an occasional treat may not make a dent in your budget, eating out regularly or splurging on the latest trends every week can send your budget spiraling.
Add up those “˜occasional’ expenses and deduct the total from your savings in Step 3.
Are you happy with your monthly savings? If you are, there’s no compelling need to cut back. However, if you aren’t, it’s time to change a few spending habits. Take a closer look at those miscellaneous expenses and see where you can cut back. Perhaps that cable subscription can go? Or those twice-weekly dinners at expensive restaurants?
Cutting back on luxuries and using that money to clear your debts faster is well worth the sacrifice. Being debt-free is truly liberating. Once you’ve paid off your debt, you can spend your money any way you want to.
Step 5 – Brainstorm Actions That Will Help You Reach Your Goals
Setting savings goals is a great habit to get into. But it won’t do you any good if you don’t make a plan on how you’re going to achieve those goals. It’s just as important to think about concrete actions you’ll take to turn those goals into reality. A lot will depend on your savings goals. Did you set small goals or lofty savings goals? Whatever your goal, it’s now time to brainstorm specific actions that will help you reach your goals.
Here are some ideas to get you started:
- Look at what non-essential expenses you can cut back on. Be specific about which expenses you intend to cut back.
- If your credit score has improved and you qualify for a lower interest rate, consider refinancing your loans. The lower interest rate could help you save a significant sum in accrued interest.
- If you’re earning a high income, consider refinancing to increase the monthly repayments. The higher payments will reduce the loan term. A shorter term means less accrued interest and higher savings.
- If your current work schedule and personal commitments allow it, consider a side hustle to complement your primary income. The more money you earn, the more you can potentially save, provided that your lifestyle stays the same.
Step 6 – Write Down Your Goals
Writing down your goals may seem unnecessary, but you’ll be surprised at how quickly you’ll forget about them in the New Year in the hustle and bustle of everyday life.
Creating an Excel sheet or putting pen to paper and detailing your goals and action steps will increase your chances of taking action to achieve your savings goals for 2022. Choose a method that works for you – either digital or pen and paper. Keep your detailed budget someplace that serves as a reminder instead of lying forgotten in a drawer somewhere.
Step 7 – Track Your Progress
Tracking your progress every two to three months can help you identify if you’re on track with your savings goals. Seeing your progress can be incredibly encouraging and you’ll be motivated to keep savings.
It can be disappointing if you haven’t, but it also serves as a way to take stock and reevaluate those goals. Did you fall short because you set unrealistic savings goals? Maybe it’s time to make a few adjustments. Whatever the reason you failed to stay on track, assessing your progress regularly can help you to re-assess and make the necessary adjustments.
If you are having trouble understanding what your savings goals for 2022 should be, talk to a financial planner and let them help you build upon your success.
