April 21, 2021
While understanding the basics of an emergency fund is essential, laying out extended savings goals is equally as important. It is tempting to put off saving simply because it requires time to sit down and map it out. But a benefit of understanding your savings is that it enables you to accelerate your financial goals, including living a more generous life!
Measuring to Plan
You can’t manage what you don’t measure, so the first step in a savings plan is to determine all your monthly expenditures. This includes your lifestyle expenses, planned savings, giving, taxes, and debt payments.
Once you have put this all on paper, you can clearly see if there is a surplus or a deficit. If there is a deficit, it can be reconciled by increasing income or decreasing spending. It’s important to create and protect a surplus because this is what funds your longer-term goals, such as intentional giving.
Measuring to Protect
Measuring your surplus in advance is the first step towards realizing your goals. Then, there is the additional step of protecting your surplus to keep it from being absorbed into your daily lifestyle expenses. Practically, this looks like ensuring that your savings, giving, debt reduction, and taxes are taken out each month.
Jim likes to reference the strategy of putting all your income into savings and then transferring only enough to live on to your checking account. That way, you flatline living expenses and accelerate your other financial goals.
Another strategy we like to employ is automation: set your other cash flows (funding retirement accounts, paying extra on debt, giving, or growing your emergency fund) to come out automatically. This is encouraged so that you aren't left scrambling at year’s end to scrape together the needed cash. You also won't consume the money you intend to fund your longer-term goals. It also reduces the amount of actionable financial items you have to attend to each month. We are all busy and the built-in accountability saves time, effort, and ultimately leads to better results.
Making it Happen
Figuring out how to prioritize and manage your surplus is a more complex conversation, one best paired with a financial advisor who can help you articulate and materialize the life you desire.
The sooner you start saving, the greater the probability of success you have in reaching your financial and life goals. And should it be your dream, deciding your savings priorities will really help you focus on stewarding your surplus towards intentional giving. Why not get started today?
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