What matters more: saving money today, or reaching your financial goals for tomorrow?
Paying for home renovations and taking a family vacation, or saving for retirement and paying off credit card debt?
And where does saving for mid-term goals, like a new car or your emergency fund, fit into your plan?
The truth is, the best savings plans include a mix of all of the above!
If you find yourself struggling to balance your short-term needs and long-term financial goals, you’re not alone. Many of our clients come to Cook Wealth looking for a clear financial plan to save for retirement, make a down payment, or pay for their child’s education— while also enjoying the rewards of their hard work. And they’re surprised to learn that the best way to save money (especially in times of inflation) isn’t necessarily the most straightforward. Every plan is as unique as our clients themselves.
So, before you dump every spare dollar into your 401K and call your financial plan good to go, consider our advice for saving smart while taking meaningful steps towards your financial goals.
Not all savings accounts are created equal
We often see savers make one of a few common savings mistakes that can really impact their financial health: Saving all their extra money into one account, using a low-yield account, saving too much (instead of leveraging investment accounts), and skipping their 401K.
When you save all your extra cash in one type of account, you can be missing out on the tax and growth benefits that come with diversified savings “buckets,” as we like to call them – like CDs, bonds, and high-yield savings accounts. (Think of these options as separate buckets you can fill over time at the right times.) And by over-saving, instead of investing, you could be costing yourself valuable growth on the cash you don’t need for the next few years.
Your 401K account isn’t an emergency fund!
There’s another savings struggle we’re seeing more often these days, especially among our millennial-aged clients. Many of these clients have been over-saving in their 401K accounts, instead of diversifying their savings. When their circumstances change and an emergency, home repair, or medical expense comes up, they’re forced to withdraw from that 401K account and face a stiff penalty.
That penalty wipes out the best benefits of saving into a 401K— and the biggest reason that a retirement account is a part of most financial goals. And it’s a consequence easily avoided when you work with a forward-thinking financial advisor.
At Cook Wealth, for example, our advisors recommend saving in a range of accounts that don’t all carry a withdrawal penalty. We start by creating realistic financial goals that match your lifestyle and priorities. Then, we work together to create a personal finance strategy that meets both your unexpected needs of today and your long-term plan.
A little savings account automation goes a long way toward reaching your financial goals!
The best solution to the savings mistakes that set back both high-earning young people and mid-career professionals is automating your savings using a tailored savings plan.
Rather than dropping every dollar into your 401K, talk to a CERTIFIED FINANCIAL PLANNER™ professional about which savings buckets to fill or your unique goals. They will likely recommend a mix of retirement savings, emergency funds, high-yield savings accounts, and a small amount of cash available for quick withdrawal from your checking account.
Once you have a clear savings and investment strategy, tailored to your money goals, you can set up automatic deposits that tuck those funds away before you even miss them!
Your savings plan should go hand-in-hand with your financial goals
Saving money today is the first step towards meeting your financial goals for tomorrow. But exactly how much and where you should save depends on your financial situation.
Your savings journey will likely have multiple stages, each with its own financial goals:
- Saving into your emergency fund. Start by setting aside $1,500 for emergencies. Once you’ve met that financial goal, aim to save up enough cash to cover six months of expenses.
- Paying off debt and saving for retirement. A robust retirement savings account does you little good if you don’t have enough money in the bank to cover a minor emergency or credit card debt! That’s why saving for retirement should be the second stage in your savings journey. Once you’re debt free (aside from your mortgage), work towards saving 10-15% of your income into your 401K, up to the matching limit. Once you’ve met that financial goal, you can start saving into your Roth IRA.
- Saving for specific goals and investing. With your short term financial goals met, and your retirement plan automated, now you can start saving towards a new car, a big move, your child’s college education, and more. This is also the stage we recommend looking at diversified savings options and tax-advantaged investments.
Automating your savings and taking a closer look at your spending habits are crucial steps towards meeting your financial goals. And knowing the savings stage you’re at today makes building a beneficial, long-term savings plan even easier.
The CERTIFIED FINANCIAL PLANNER™ professionals at Cook Wealth take the guesswork out of saving
Our joint team of tax and financial advisors help hard-working professionals and business owners maximize every opportunity, save smart, and keep more of what they earn. When you work with our team, creating a tailored and automated savings plan is one of the many ways we’ll help you live life empowered.
Learn what we can do for you when you book an intro call with our team.