Money Challenge: Save for Multiple Financial Goals

Today's money challenge, should you choose to accept it: create an automatic savings plan for multiple financial goals. (Preliminary challenge: figure out what short-term things you want to save for!) Here are our best tips on how to save for multiple financial goals…

I've written before about how I amortize big expenses and save money by automating my savings, but it's been a while, so let's make it today's money challenge!.

This is part of our series on occasional tasks you can do to improve your financial well-being. I’m not a personal finance expert — this is just stuff that I do myself from time to time. If you have any comments or different strategies, I’d love to hear them! See the entire Money Challenge series here.

(If you’re looking for more basic investing advice, I’d suggest taking a look at our Money Roadmap, which lays out what steps you should take and in what order, with links to posts with more information and discussion.)

You also may want to check out our personal money snapshots, where anonymous readers share their net worth, salary, and other thoughts on personal finance!

Automatic Saving vs. Automatic Investing

In general, if the financial goal will be “due” soon (or should be), I use savings buckets. If it's a longer term goal (more than three years out), I tend to use automatic investing.

When I didn't know what I was saving for, I used automatic investing instead — particularly during my late 20s, when I was working in BigLaw and single. Was I saving for a wedding or honeymoon? Was I saving for a down payment? Was I saving for some future business I'd try to open, to go back to school, or just to take a sabbatical for a while? I really had no idea so I just stuck a bunch of money either into index funds or into a Schwab money market fund (where I was extraordinarily lucky that, at the time, it gave 7% interest).

I think I only started separating my savings into buckets when I started to get serious about Corporette — all of my taxes and retirement contributions are made at one point in the year, so if I don't prepare for that in advance it can feel like huge amounts of money are flying out of my accounts. I started to see the value in making different buckets for saving, and it was so easy to do on Ally that I kept making different savings accounts.

(A note: I've used Ally for long-term savings for a while now, so a lot of references will be to that — but this post is not a sponsored post. Here's a recent Business Insider article on which banks make it easy to save for different goals.)

{related: when to save vs when to pay down debt}

Which Savings to Put on Autopilot

Automatic savings are great for big expenses coming up in the short term:

• vacations
• emergency fund: generally 3-9 months of expenses in case of catastrophe (but stop saving money in there once you're fully stocked)
• predictable school, healthcare, or insurance expenses — think tuition, your healthcare deductible (see how much you spent last year to estimate), or big insurance expenses like term insurance.
• “fun fund”: This is different from our emergency fund in that I keep a smaller amount for when we go over our regular spending — I usually use it for an unusually big purchase like a new bag, theater tickets, or kid-related lessons.

Personally, I particularly love to set up automatic savings buckets for things that I might otherwise feel regret or stress when the credit card bill comes due (healthcare deductible, term insurance). I also have found that it's great to encourage me to do the things I want to do but might feel stressed about spending the money on (vacations, expensive but little house projects like new countertops, window coverings, paying for someone to paint/wallpaper, etc.).

(To be honest, for much bigger investments I just put them into one account instead of multiple accounts/buckets.)

Here's where priorities come into play! If you tend to have $1,500 disposable income each month, which goals are the most important to you for saving? (I'd highly recommend having at least three months' worth of expenses in your emergency fund before starting with fun stuff.) I might divvy that $1,500 up by saying: $250 to emergency fund, $250 to vacation fund, and $500 to random long-term saving (if the market is good). If the market isn't good, or you don't have any big long-term goals other than retirement, that division might look different. I also tend to adjust my automated savings when a certain amount is met, such as where for the past few years we haven't taken hardly any vacations so that account was fully stocked.

I would probably only put huge expenses like down payments and car purchases into a savings account once it's on the three-year horizon. (If I'd been saving by sticking the money into index funds, I'd also either set up automatic transfers to get the benefit of dollar-cost averaging, or (if I happened to see a favorable trend in the markets), I'd sell a big chunk of the investments and move the money into savings.)

How to Save for Multiple Financial Goals

If you're not already saving for multiple goals, this is what I would suggest for today's money challenge:

1. Decide which bank you want to use for financial goals coming due in the next three years. This Business Insider piece lists the current interest rates of six different banks that allow you to save for multiple financial goals.
2. Look at what's needed to open an account; if it looks like you can do it today in less than 10 minutes, just do it now.
3. If you can do it today, set up at least one bucket in the account for a specific goal — let's say Vacation. (In Ally I've opened multiple accounts because it's been easy to do over the years, but they have a new “buckets” system that encourages automatic transfers.)
4. Your long-term bank should have an easy way to link your checking account (you probably needed to do this when you set up the account!) — now's the time to set up your first automatic transfer.
5. If you don't know exactly how much you want to save, that's OK! I'd suggest starting with $25-$75 a week, depending on your disposable income and how reliable your checking account balance is.
6. Alternate option: If you happen to keep records of how much vacations cost (am I the only one who does this?), I'd suggest taking the last 2-3 trips, averaging the cost, and adding $500-$2000 for the random little expenses that don't really count to you as vacations, like flights to see family or friends. Take the total number (average + cushion) and divide by 12. Can you swing that monthly? If it's an amount that won't be too painful, set up a monthly transfer for that amount from your checking to your long-term bank. I always set the end date as “until I tell you to stop.”
7. Make a note to yourself how much you need in your account at various times of the month — you may want to set up some transfers to go the 1st of the month, and others on the 15th of the month.

Readers, have you created an automatic savings plan for multiple financial goals? What are your best tips for how to save for multiple financial goals (and which banks do you like for this purpose?)

Stock photo via Shutterstock / Chris Bignell.