Balancing your life (part 3): saving

Coin stack and saving money
AJ & KJ: We’ve mentioned a lot about balancing your life whether that’s from our first post in this series on balancing your work or our second post in this series on balancing your spending, but it’s also very important to consider balancing your savings buckets. This may sound like a strange concept, but much like everything else in life, you don’t want to stretch yourself too thin on your savings in trying to accomplish too many goals at once. Try to focus on three goals at a time, and save for a purpose. You should instead first identify your goals and then evaluate the path on how you can get there. Some people like setting up different savings account buckets for different goals, but that’s not always realistic. In some instances though, there may be a specific tax-advantaged way you can save for your goal (be it retirement through an IRA, 401(k), etc. or various funding vehicles for children’s education) and money for other goals (home downpayment, car purchase, major home repair, etc.) may be all lumped into one primary savings account.

Balance your long-term versus short-term plans
Balance your long-term goals with your short-term goals. Easy, right? Well, it’s much more challenging than it would seem. On the one hand, you don’t want to put all your eggs in one basket hoping for the day you can retire and splurge on everything you have been waiting your whole life because (and not to be too morbid) you might not make it there! On the other-hand, if you focus everything on the short-term, then you may potentially thwart any chance of retirement you may have. Learning to tip-toe around this balance is quite challenging, and the best way to do this is to periodically sit down and track your progress toward your various goals and make adjustments. We’ve had our fair share of adjustments lately with moving to a new home, working on selling our existing home, identifying home improvement projects, and taking a fantastic European trip to Spain and Italy, and at times it’s enough to make our heads spin. But we keep our goals in front of us and balance the ‘must have now’ versus the ‘it’s okay to wait.’

Identify your immediate needs (less than 18 months)
More and more, I discover that cash is king. With cash, you afford yourself so much flexibility to do (or purchase) the things you want and to see the things you want. However, much like in the previous note, you may not want to put too much of your assets in such an unproductive asset that will likely not withstand inflation’s erosion over time. So figure out what you need for your emergency fund, identify any short-term expenses in the next 18 months and look to keep those goals in cash or very short-term accounts. The rest you should look at setting aside in longer-term strategies, and if you’re not prepared or willing to handle this yourself, consider seeking professional guidance with a financial advisor.

Evaluate retirement
Most people are not equipped to look at this goal themselves, so consider discussing with a financial advisor before making any serious adjustments. Rules of thumb aren’t appropriate for most, so sit down and evaluate what retirement means to you and what you think you may do. For some of us, this is a VERY long ways away, so what we think now is highly likely to be entirely different than reality decades from now. Maybe you will want to work longer, but part-time for a while or maybe you’ll want to escape to Europe for several years. All you can do is plan for what you think now and adjust as you move forward. Just because tax rules allow you to put more toward retirement doesn’t mean you NEED to do that. Again, it’s a delicate balance of the here and now versus the unknown future that you should weigh in what lifestyle you are willing to give up today for a better lifestyle in the future or vice-a-versa.

Review children’s education
Children become your life, so it’s no wonder why people want (or feel downright obligated) to pay for their children’s education. They feel drawn to find a better future for their children, so for most, this includes college education while for others this may extend to private primary schools. Whatever your goals, consider the implications for your retirement and other goals you have for you and your significant other. Angela and I were extremely fortunate to not come out of college with massive student loans, and we are so gracious for the sacrifices that our parents made on our behalf. In planning your goals for your children, it’s equally as important to make sure you are taking care of your own future and your goals. But just like the IRS allows you to set aside up to a certain amount to an IRA for retirement, the IRS allows you to fund a 529 plan or a Coverdell Education Savings Trust for education, but it doesn’t mean you should fund the max and throw your other life goals out the window. What makes sense from a tax standpoint doesn’t necessarily make sense from a quality of life standpoint, so keep that in mind as you articulate your goals and work towards them over time looking at how all of your goals relate to one another.

Bring it all together
It can seem downright frustrating to save sometimes. You save for retirement, children’s education, a down-payment on your next home, expensive tires for your vehicle, and vacation of a life-time that it may seem like you’re only making small steps each month toward the individual goals. Even if it’s just starting with $25 per month to each goal, any little bit helps go a long ways when you add up all the different buckets of what you’re trying to do. An additional $25 to one goal adds an extra $300 per year to that bucket. And much like New Year’s resolutions, if you keep the goals front of mind and you check back on your progress frequently (once a quarter at least), then you can see the real progress you are making in taking that trip of a lifetime or retiring when and how you had always dreamt of. Be sure to check the status of each goal periodically, so you can make adjustments as needed to each bucket (maybe next year you’ll put more in your downpayment bucket and the following year you’ll put more toward children’s education for instance). Whatever your mix of savings is, be sure it is aligned with your priorities and what you want out of life for you and your family…if it’s not…then adjust to get it there!

    How do you maintain balance in your savings?
    What causes you to feel out of balance?
    Tell us about your top three priorities for your savings goals.

If you missed our previous posts on balance, check them out here: Balancing your life part one work and balancing your life part two spending.

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