Open Thread: Let’s Talk About Savings Goals
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Please note that this post was written when Kat was still anonymous and using the royal “we.”
Wow, we were not expecting that response to the “how much do you spend on clothes” thread — among a lot of our friends we're the cheapskate. (We run with a lot of well-dressed ladies!) Keep in mind, however, that we haunt the sales — as we tried to make clear, there's a difference between what you think a work-appropriate item of clothing should cost and what you'll pay for one.
{related: not sure what to do first/next in your personal finance journey? here's our money roadmap}
For example, yes, most of our bags cost around $600-$700 — but we figure out which brands we like, and then stalk the sample sales (both online and in NYC); we've also gotten some ridiculously great deals. In general, we end up paying around $200 for a bag. But that's part dedication, part talent, and part ego, also — we enjoy getting a good sale on things we think are high quality.
But how much you spend on clothes should, obviously, be less than what you're saving — for retirement, for a down payment, etc. So let's talk about this.
{related: how to pay off big student loans and other big debts}
We don't have an expensive hobby (e.g., jewelry-making or something), and we have no pets or children. No car payments (NYC), and until recently, we rented (in what we always considered to be reasonably-priced apartments). We pay our credit cards in full every month.
How We Look at Savings Goals
With that out of the way: one of the most amazing gifts we ever got from our father (in addition to the above-mentioned tuition) was this piece of advice: set a savings target every month. We've always done this — even when we were making a low, low amount of money as an editorial assistant for a major women's magazine, we tried to save $X per month.
Psst: In honor of this series' original title, Tales from the Wallet — here's a wallet we love!
The goal started out as $100, in those days — and some months it was tight; we'd end up buying bags of potatoes and eating a baked potato with a slice of American cheese for dinner in order to meet the goal.
When we graduated law school — making more than 5X what we were making as an EA — we set our savings goal higher, adjusting it as our pay increased.
{related: financial tips for new lawyers (or other women in their first high-paying jobs!)}
What your target is, obviously, depends on your lifestyle, your debt, et cetera. There's probably something to the way in which we save, also: once a month, we physically move our “savings” from one account (our checking account at the local bank) to another (a Schwab money market fund).
{related: how to automate your savings}
This is pretty easy to do — most banks can link accounts online so it's easy enough to do with just a few clicks. But it accomplishes a lot of things.
First, how much we save is very present in our minds — our savings target has sort of morphed into a checking account target; we don't like to keep more than so much money in our checking account and we move everything above and beyond that into our Schwab account (our savings target is more like a minimum, in our mind).
{related: how to save for multiple financial goals}
Second, we are very aware if we're dipping into our savings. If we can't meet the minimum savings, we reexamine our month — what were we doing that cost so much money? If we actually have to move money over from our savings account back into our checking account, we buckle down even more.
Another important thing (we think) is that we don't include bonuses or other “found” money in our budget. So if we got a big bonus from the job, that went almost entirely to savings. Tax refunds, large gifts — they all went into savings — until we figured out what to do with them.
{related: how to set up automatic investing}
We have never left money sitting around in our checking account to be spent. Sure, we've dipped into it through the years — trips, a nice watch, et cetera — but those were very intentional, planned splurges. (We didn't start doing this until fairly late in the game, but we also max out our 401K every year.)
Obviously, what you do with your savings is a very different issue, and we don't pretend to be financial advisers. The best tip we can give you, though, is to find a savings or money market fund with a high interest rate (in your favor, we mean), and stick your money there until you have time to hire a financial advisor, or read some books or articles on investing, or until it's time to pay for that downpayment.
What tips and tricks do you use to save money? How do you try to save every month? How does your spending on clothes compare to what you're saving?
Updated images via Stencil. Originally pictured: Money, originally uploaded to Flickr by AMagill.
What a great post and thoughtful advice as well! And I love the opportunity to syareI have to admit I get a stomach-ache just thinking of retirement savings, because, well, we basically have none. When we lived in the States DH was putting money into a 401k from his salary, but since we have moved abroad nothing has gone into long-term savings; DHs goal was to get as much of my (private) law school loans paid off as possible – he is European and has no debt.
But now we are facing the trifecta of money worries – I am pregnant, my job will be ending in April, his will end in October, when we will move back to his home country (potentially with both of us without jobs).
We are currently saving all of his salary and living off of mine, but still will barely have enough to cover 3-6 months of potential unemployment plus moving costs when April rolls around (and we have to survive on just his salary in one of the most expensive cities in the world).
I disagree with posters who say separate accounts are a recipe for future divorce. My husband and I (married for 10 years now) have separate accounts – he makes twice what I do, though when we started out, I made more than he did – and have joint accounts for all investments. But we never keep track of who pays for what as we think it truly doesn’t matter. We just couldn’t be bothered with a joint a/c and the tracking that goes with it. Many times, we will transfer money to each other’s checking accounts if running low on funds – we never give it a thought or as I’ve seen couples do, demand ‘payback’.
It’s strange but in Singapore where I live the creed is “what’s yours is ours, what’s mine stays mine” (female thinking). I know couples who even split the grocery bills! Sounds awful but true. And still “married”.
One incredibly important saving strategy that wasn’t mentioned here is participating in any kind of 401(k) plan that your employer offers. At a minimum there will be a tax benefit, and if you’re really lucky an employer will “match” your contributions at a certain percentage or up to a certain amount. In fact, if you have the option of participating in an employer matched plan, and you don’t, you’re potentially throwing away tens of thousands of dollars that would accumulate on your employer’s “match” between now and your retirement. This is a great way to both build up a retirement plan, and/or save for a downpayment on a house- you can withdraw up to a certain maximum to use towards the purchase of real estate (check with the company administrating the plan for maximum amounts that can be withdrawn- usually 10,000$, and any restrictions on how soon it can be withdrawn, etc.)