Published May 05, 2014
Most people work toward several financial goals at once but keep their money clumped together in a single savings account. With this setup, it's easy to forget how much you've saved for each goal and easy to borrow money from one goal to pay for something else.
I prefer a method I've dubbed targeted saving. Using an online high-yield savings account, I split my money into several different subaccounts, each of which is named for a specific savings goal. My bank lets me name my accounts and subaccounts, so I give them titles to indicate their purpose. At the moment, I have the following accounts:
From time to time, I have other goals that need to be funded. When this happens, I open a new targeted account (or re-use an old one). Though organizing your accounts this way might seem pointless, it can actually be a powerful motivator. For me, there are several advantages over the traditional one-size-fits-all savings method.
I use an online bank for my targeted savings accounts, but there are other options. Before I moved my banking online, I kept my savings at a community credit union. Despite their small size, they offered big benefits, including the ability to open several named savings accounts. (I'm not ashamed to admit my first targeted account, opened in 2006, was called "Nintendo Wii fund.")
Obviously, you don't even need to open separate accounts to apply the principles of targeted saving. If you'd prefer, you can put your money into a single savings account while using a piece of paper (or a spreadsheet) to track which portion of your savings account is meant for each individual goal. But for most folks, it's more fun and more productive to open a separate account for each goal.
One final note: Especially when first developing the habit, it can be helpful to treat saving like a bill. Just as you're obligated to pay for your cell phone each month, create an obligation to save for your next car or your daughter's college education. For some, a simple calendar reminder will be enough to heed this obligation. Others might wish to create a coupon book that includes a year's worth of reminders about how much to set aside in savings and when.
This is a modified excerpt from "Be Your Own CFO", the 120-page guide included with the year-long "Get Rich Slowly" course. The guide includes tips for boosting revenue and cutting costs so that you can maximize profit in order to achieve your dreams, whether those are to retire early, send your kids to college, or travel the world. Want to know more? Buy it now.
The original article can be found at Money-Rates.com:
How to use targeted savings to achieve goals
This is a guest post from J.D. Roth, who founded the blog Get Rich Slowly in 2006. Roth wrote Your Money: The Missing Manual and is the "Your Money" columnist for Entrepreneur magazine. His latest project is a year-long course on how to master your money, which explains how to slash costs and boost income so that you can pursue early retirement and other goals. This article is one piece of this course.