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Savings Goals & Strategies

Would you call yourself a savvy saver? Or do you struggle to put away for a rainy day? It’s possible you may just need some structure to guide your saving strategies. Read on for some ideas for how to get started formulating your savings plan.


Pay yourself first, and automate your savings

To “pay yourself first” means to maximize savings over time by setting aside a portion of your monthly income before you pay your bills or do anything else with your money. If you can automatically sock away funds using an automatic transfer into a savings or investment account with each paycheck, you will be less tempted to spend the money and be more likely to remain disciplined and consistent in your savings habits. Automatic transfers use a sort of an “out of sight, out of mind” approach to building wealth through savings.


Set up an emergency fund

A general rule is to have at least three to six months’ worth of living expenses saved before starting to save for other goals. While saving for an anticipated expense or purchase can be motivating and exciting, a bigger priority should be protecting yourself and your family for emergencies that can devastate your finances.

You’ve probably heard the shocking statistic from the Federal Reserve that nearly 40% of Americans could not cover an unexpected $400 cost if faced with an emergency need. Without savings, you are less likely to successfully weather an unplanned financial emergency – and will likely have to rely on credit (and pay interest), making the financial emergency even more expensive in the long run.

Financial experts recommend that you establish an emergency savings fund before focusing on any other type of savings. Equally as important to having emergency savings, is paying down debt so that you save the money you would have paid in interest, before starting to save for goals other than an emergency fund.


Set short, medium, and long-term savings goals

It may seem so simple that it’s silly, but there is plenty of behavioral economics data to suggest that setting financial goals with target amounts increases the likelihood that you will reach these goals. You may also find you can stay focused in your savings when you have separate savings accounts for your different goals! There are many savings accounts, such as Cutting Edge’s Holiday Club account, that have certain access restrictions that help you stay disciplined in reaching your savings goals.

A short-term savings goal would be an expense you are saving for within a six- to 12-month time period. Examples of a short-term savings goal could be saving for a vacation or the down payment on a car. A medium-term goal would be something you’re saving for within the next five to ten years. Examples of a medium-term goal could be saving up for the down payment for a home or for your or your child’s wedding. A long-term financial goal might be harder to set a dollar amount for, as the timeline is so long and the future is impossible to predict – however, setting savings goals and starting to save for things like your kids’ college funds or your own retirement is incredibly important!


Education Savings

Speaking of saving for college, there are specific resources available that help maximize your savings for educational purposes. An Education Savings Account (ESA) is a tax-deferred investment account designed for saving for college that functions similarly to a Roth IRA. Anyone can contribute to an ESA for any future student, so long as your adjusted gross income is less than $110,000 for a single-filer, or less than $220,000 for married couples filing jointly. Students can withdraw funds at any time before age 30, and pay no taxes on distributions as long as they use them to pay for qualified higher education expenses.

A 529 College Savings Plan is another tax-deferred investment account designed to pay for education-related expenses. Anyone can start a 529 college savings account for any future student, including parents, grandparents, siblings, and even friends. A 529 can even be used to pay for up to $10,000 of K-12 education for qualified expenses like tuition to a private school. Another benefit to the 529 plan includes the ability to prepay for a participating private school to lock in current tuition rates for a future student, potentially saving a ton of money as tuition inevitably continues to rise.

Individual Development Accounts (IDAs) are designed for savings for specific things like education, a down payment on a home, or starting a business. IDAs are typically available for folks with low incomes, and provide matching savings opportunities coupled with financial education and coaching to meet savings and educational goals. IDAs are typically administered by individual states in partnership with designated financial institutions, and are only available to those who qualify.


Retirement Savings

An easy way to fund a retirement account is to participate in your employer’s retirement plan, if one is offered. Examples of an employer-sponsored retirement plan would be a 401(k), 403(b), or a 457 plan based on whether you work for a private employer, a nonprofit, or the government (respectively). Generally speaking, your taxable income will be reduced by the amount you save in these types of plans. If your employer offers to match up to a certain amount or percentage of your contribution, this is essentially free money that goes toward your retirement and you should consider taking advantage of this benefit!

If your employer doesn’t offer a plan, you may consider saving for retirement using an IRA. Individual Retirement Accounts (IRAs) are tax-advantaged restricted accounts that hold investment assets purchased with your earned income. They allow you to save for retirement with tax-free growth or on a tax deferred basis, based on whether you opt for a Roth IRA or a Traditional IRA. Both Roth and Traditional IRAs have contribution limits and certain income limits, so you should consult your tax advisor and give careful consideration to the qualifications and advantages of each.

Financial experts estimate that you may need up to 85% of your pre-retirement income in retirement. An employer-sponsored savings plan, such as a 401(k), might not be enough to accumulate the savings you need. You can contribute to your employer-sponsored plan as well as an IRA, and it is recommended that you contribute the maximum amount to your IRA each year to get the most of out of these tax benefits and savings.


As your credit union, we are always here to help coach you through big financial decisions. All of our staff are certified financial coaches, and will gladly assist you in building your savings plan to achieve your goals! Contact us today to get started.

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