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Whether you’re saving for a specific goal or building up an emergency fund, the “pay yourself first” strategy can help you stick to your budget and potentially even have a little left over to treat yourself. Instead of planning to have money at the end of the month to dedicate to savings, flip the format. Start each month by dedicating money to savings, the same way you do for other expenses.
Look at your fixed monthly bills (e.g., rent or a mortgage, utilities, car payment). Once those are accounted for, it’s time to plan out your “self-payments.” You could decide to dedicate some of your income each month to your vacation fund or saving for a new home. By treating a deposit into savings like you do other bills you pay, savings can become just another recurring line on your budget.
As the practice becomes habit, you’ll be able to plan your spending money each month around the amount you have after you pay your bills and “self-payments.” Over time, it’ll become almost automatic. And your savings account will thank you for it!
If you have Goldman Sachs Financial Wellness as an employee benefit, you can set up a confidential, one-on-one appointment with your coach to strategize your own “pay yourself first” approach.
At the root of most financial goals is saving. So it’s no surprise that our Financial Wellness coaches receive questions about savings regularly. Here’s a recent example from Financial Wellness coach Charlie, who helped a client achieve her savings goal of establishing an emergency fund and buying a home.
“A few of her colleagues had set up an emergency fund and she wanted that same sense of security. We discussed setting up the fund and how much she should put aside. To calculate this, we looked at her total monthly expenses and her lifestyle—including her family, their goals, and her comfort with risk. We decided a six-month fund was right for her (her monthly expenses multiplied by six).
Then we looked at high yield savings accounts which could give her better returns, while also making sure she could access her money easily. Once that was settled, we made a plan to build that emergency fund over time, while keeping her other financial goals in mind.
She and her husband were also looking to purchase a new home in about six months. It was a natural transition from talking about savings strategies to home affordability and the down payment. She wanted to put down 20% for the home so we determined the amount she would need and how much she needed to dedicate toward that goal.
Seven months later, she was in her dream home!”
Updated for tax year 2020