“You’re also still trying to live and have fun and not eat ramen noodles every day,” says Al-Nesha Jones, a certified public accountant (CPA) and founder of ASE Group, an accounting, tax and advisory company in New Jersey.
Saving is further complicated by the fact that we’re currently facing economic uncertainty, higher prices on everyday items and a tumultuous stock market.
Figuring out your savings priorities isn’t easy, but these strategies can act as guideposts:
Put your emergency fund first
Consider how you felt the last time you couldn’t cover an emergency, Ms Jones says. “If it gave you major anxiety, keep that feeling in mind when you prioritise.” In other words, create your emergency fund before everything else, because it’s so critical to financial security.
“Now more than ever, people are understanding the importance of a rainy-day fund,” says Eric Maldonado, certified financial planner and owner of Aquila Wealth Advisers in California. “It’s good fundamentals to have cash in case stuff starts costing more.”
Next, prioritise retirement
“Retirement is a long-term game and time is on your side, so even if you start with something very small, the more time you give yourself to work on it, the better off you’ll be,” Ms Jones says. “If you keep putting retirement off, we blink and now we’re scrambling.”
Thinking through the worst-case scenarios of not saving for different goals can help underscore the importance of funding retirement accounts.
Noah Damsky, principal of Marina Wealth Advisers in Los Angeles, says you should save for the categories with the most severe consequences first — and retirement tops that list, since no one wants to be impoverished in old age. “Running through those scenarios helps crystallise what’s important,” he says.
Decide what you want in the near term
This next category of savings priorities is complicated, because you must determine your near-term goals. They might include buying a home, travelling, moving to a new city, starting a family or something else entirely.
Dale L Shafer, a CPA and founder of Life Moves Wealth Management, recently moved with his family from Michigan to Arizona, and his near-term goal is to save up to buy a home there.
The pandemic spurred many people to make major lifestyle changes and as a result, their near-term savings goals shifted, he says.
“Sometimes we reset expectations and sometimes we achieve more than we thought,” he says. It’s important to check in on your savings progress at least several times a year so you can recalibrate when needed.
Jay Zigmont, a certified financial planner and founder of Childfree Wealth in Mississippi, works with clients who don’t have and aren’t planning to have children. He says many of them are focused on major life shifts, such as starting a business, moving overseas, travelling or taking a sabbatical from work.
“You might not be able to do everything at once, but you can do most things over time,” Mr Zigmont says.
To keep all of these goals straight, Mr Maldonado suggests opening a separate savings account for each one and giving it a nickname, such as “Greece, $5,000” or “Lake cabin rental, $1,500”.
Online, high-yield savings accounts tend to offer higher returns than those at traditional banks, and you can set up automatic deductions from your account or paycheque. “It’s positive inertia that keeps the money going where you want it,” he says.
You can always make changes later. “Just get in the habit of saving, and then you can go back and add other goals,” Ms Jones says.
Enjoy life along the way
As important as it is to save for all of those priorities, so is enjoying life today.
Don’t wait until you have a fully funded retirement to put money towards items that bring you joy, Ms Jones warns. That’s why she’s saving to buy a Tesla, which she hopes to purchase by the end of the year.
Mr Maldonado and his wife contribute a set portion of money to a family fun account.
“We drain it every quarter. It’s guilt-free spending for the family,” he says, and goes towards things like camping trips, museums or parties.
With their savings safely stored in other accounts, it’s spending the whole family can feel good about.