Wednesday, July 15, 2009

Figure Out What You Are Saving For

Tip # 163 - Figure Out What You Are Saving For. I have written recently about having financial goals. And I am going to discuss them again because I think they are very important. Many people I talk to or read about discuss how much they save on various items and events. “I saved 20% on my grocery bill!” “I cut my cable bill in half!” “I can feed my family for only $50 per week.” All of these steps are great. But why are they doing it? Saving in and of itself does not accomplish anything unless you are actually benefiting from the savings.

If you normally have a $500 monthly grocery bill and can cut it down to $400, that is a great way to accumulate money. But it is what you do with that savings that is important. Are you going to put that $100 towards a debt that you owe? Are you going to put it in a retirement account? Your children’s education fund? Or are you saving money in one place and spending it in another?

As you start down the path to financial security, having goals are the most important step. Write them down and then work toward them. They may need to be revised as circumstances change or they may need to be tweaked when you realize how realistic or unrealistic they were. But writing down your goals will at least lead you in the right direction. Then you can take the steps to save money. As you save money you can put it towards your goals. This way you are not saving just for the sake of saving but instead you now have a clear direction for the money that you have saved.

It’s a very simple step toward financial security, but one that many people don’t take. They gleam about the deal they got on their new car or the cute suede jacked, but good deals only get you so far. Taking advantage of the money you saved from the good deal is the next step to get you where you want to be financially.

In Real Life (IRL) – As I mentioned in many of my posts, I have several financial goals written down for our family. One goal is to put $2,000 toward each of my children’s college education. Another goal is to put $5000 into a Roth IRA for my husband and me (total $10,000). In order to save that $16,000 per year, I need to be careful with my spending. One area I often spend money on is books. I love to read. I can go down to the nearest bookstore and buy a new book once per month that I like to read at a cost of $15 per month. That would cost $180 per year on books. Or I can go to the used bookstore in another town and spend $5 per month on a new book and spend $60. Then I can marvel at my ingenuity and savings. I can write about it on my blog that I saved $10 this month on books. Hooray!

But what do I do with that $10? I may treat myself and my children to lunch at a local sandwich shop or I buy some ice cream on the way home. Whoops! So what good did that savings do for me if I didn’t actually put that $10 that I saved toward my goal? It did absolutely nothing. Yes, I got a good deal on a book but it did not lead me toward financial security nor do anything for any of my financial goals.

Instead, if I take that $10 and deposit it in my daughter’s college account I am now contributing toward our bottom line. I saved our family some money and then I took the next step and put it towards savings. Taking that next step after saving money is a big step that many people don’t do. Getting good deals isn’t good enough. You then have to act on the money you saved from the good deals you get and that will lead you to more financial security.

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