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What’s Your IDEAL Savings Goal?

by | Apr 10, 2019 | Financial Basics

Are you satisfied with the state of your family’s finances? Many of us aren’t. “Money issues” are often cited as one of the biggest causes of stress in our lives and marriages.

Last week I started a 4-part series I’m calling “What’s Your IDEAL Scenario?” My motivation in writing this series is to help you visualize a NEW financial future for your family.

  • Are you stressed because you’re living paycheck-to-paycheck?
  • Are you stressed by the lack of savings you have?
  • Are you feeling trapped by debt?
  • Are you worried about the future because you don’t have enough money stashed away for retirement or your child’s college education?

If you tick any of these boxes, you might be asking yourself, “Where do we even begin?” Don’t worry, you’re not alone in asking that question.

As I talked about last week, the first, big step you can take towards a better future is to start visualizing where you’d like to go. One of the components of that is to get clear on how much you should be saving each month. That’s the topic we’re going to tackle this week.

Putting Pencil to Paper

Numbers and math have a way of bringing clarity to your financial life. You might not want to see what those numbers say! But it’s critically important to your family’s financial future to do so.

In this exercise, we’ll put some real numbers around how much you “should” be saving each month for your family’s two most important long-term goals: retirement, and saving for your child’s college education.

Free coaching tip: Don’t shy away from this exercise. I know what it’s like to NOT want to look at the reality of your situation. I was in that very position a decade ago. But the pain of not knowing eventually overcame my fear of seeing the reality of my situation. And I’m glad I did because it inspired me to get my head out of the sand and to get on the right track!

Your IDEAL Scenario Savings Worksheet

I’ve created a simple worksheet below where you can track your monthly savings needs. Remember, we’re talking about what your IDEAL scenario would be. Not necessarily what you’re able to do right now.

Let me be clear: These are ROUGH, ballpark estimates. Treat them as a starting point, not the final say on how much you should be saving for these goals.

To get the most accurate estimate, I’d encourage you to work with a Certified Financial Planner (CFP®). They’ll be able to dig into your specific details much more than an online calculator will do for you. And yeah…I’m a CFP® so this is a little self-promotion.  But honestly, if you want the most accurate numbers you need to work with a professional 1-on-1.

Saving for College

To estimate how much you’d need to save for college, I’m going to have you visit the aptly named Savingforcollege.com calculator. It’s perfect for doing quick calculations.

You can access their calculator here.

Step 1: Enter your child’s age
Step 2: Enter your Household Income. This is your annual PRE-tax income (sometimes called Gross income)
Step 3: Enter the amount of savings you already have where it says “Current College Savings”
Step 4: Select the Type of College your child may attend.
Step 5: What percent of your child’s education do you want to pay? 100%? 75%? 50%?

Once you’re done, you’ll see your “Monthly Contribution” amount towards the bottom. That’s the amount you’d have to save each month to meet your child’s education goal. Enter that number in the worksheet above.

Now here’s the thing. If you have multiple children that will go to college, you have to do this exercise for EACH ONE. Enter each of those amounts in the worksheet above.

Saving for Retirement

To assess your retirement savings needs, I’m going to have you use my own Retirement Calculator. There are a lot of online calculators out there but I like this one for its simplicity and the fact that it builds in an estimate of Social Security income.

You can access the Retirement Calculator here.

Step 1: Enter your age and Household Income (again, this is your annual PRE-tax income); Click “Let’s Get Started”

Step 2: Click on the Retirement icon

Steps 3-5:

  • Enter the age you want to retire
  • Enter how much you’ve already saved up (add up the value of your 401(k)s, IRAs, 403(b)s, etc.)
  • Enter the amount you’re currently saving each month (Enter $0 if you’re not saving anything right now)

Click Calculate

You’ll see a screen like this one below. If you’re behind saving for retirement, the calculator will give you some suggestions for how you can make up the gap.

Take the amount you’re already saving and add it to the suggested additional savings amount that’s recommended by the calculator. Enter this into your worksheet above.

This is Just a Starting Point

After doing this exercise you might be looking at these numbers and thinking to yourself, “There’s no way we can save that much money each month.”

Remember, this exercise was a STARTING POINT. It’s to get some real, hard numbers on the table so that you have an intelligent place to start a family conversation.

If the recommended savings amounts are way higher than what you’re doing today, there are tons of ways you can “bridge the gap.”

For college, you get to decide which school your child goes to and what percentage of college costs your family can realistically cover. Trying to pay 100% of the college costs if you have 3 kids is going to be hard. But having them foot 50% of the bill while you take care of the other 50% is a reasonable compromise. Decisions like this can help lower the monthly savings burden.

For retirement, you can adjust your retirement age up or down. You also have control over your cost of living in retirement and when you take Social Security. All these inputs can be adjusted to help you reach a comfortable level of monthly savings.

One Final Option – Budgeting!

Finally, there’s one more way you can close the proverbial “gap”…BUDGET!

My post last week talked about being intentional about where your money goes each month. The IDEAL Month I laid out in that post invites you to determine what your Savings and Giving needs are FIRST. Whatever is left over is what you have for lifestyle spending.

The point is, you have a choice. A dollar that ends up in the Spending bucket doesn’t go towards Saving. Are you okay with that? Is the expense of that iPhone upgrade worth not being able to put a little more towards your child’s education?

I don’t mean to sound harsh, but these are the choices you have to make. Your income provides you a set amount of dollars to use. It’s up to you to decide how those dollars get allocated.

Having a living, active, monthly cash flow budget is your #1 tool for making those important decisions. Budgets empower you. Budgets give you hope. Budgets take the power of money away from fate and put it right back in your hands where it should be.

You get to decide Your IDEAL Scenario!

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