Ever since my parents started paying me $5 a week to clean the bathroom and dust, I’ve been a saver. As someone who always followed the “rules,” it’s simply part of my DNA. But I recently realized that while I’ve been socking away cash for decades now, I don’t actually really know what I’m saving for — which gave me some anxiety. I knew that a few of my future goals, like saving for a wedding, would be a bit pricey, but I had no idea if I was saving enough to pay for them.
I have an IRA account for retirement, and a general savings account with enough in it to cover any emergencies. But none of my savings is earmarked as “emergency” or “wedding” or “vacation” or anything else I assume will happen in the future. I deposit money… when I think about it. And while I know that some milestones on the horizon are going to be expensive — a wedding, kids — I have no idea how much I should be saving for those things (or if I should even be saving for them at all) at this point in my “single but in the early stages of a relationship” life.
So I asked the pros. “Most people inherently know they should be saving, but there’s a big mystery around the specifics, like how much, where, and what happens if they have to dip into those savings,” financial planner Shannah Compton Game, CFP, the host of Millennial Money podcast, told me. “You feel like you should be hitting certain financial milestones at certain ages, but there is no timeline. Instead, it’s about creating the vision you want for your life and then figuring out how to get your money to support that vision.”
And that picture doesn’t have to be crystal clear for you to start saving for it, now. Here’s how to strategize when your future doesn’t quite have a timeline.
Don’t neglect the basics
Certified financial planners (CFPs) stress that you shouldn’t worry about big life expenses until you sock away an emergency fund of at least three months’ expenses, pay off any debt you may have, make sure you’re getting your employer’s match for your 401k (if it’s offered), and max out the contribution to your company plan and an IRA. Being self-employed, I have six months of emergency funds in savings so I have a bigger cushion, if necessary, and I contribute to my Roth IRA and just set up a SEP IRA. So my bases are covered.
Know what you’re saving for
Think about the specific goals you have for your life, and what you’ll need to save to get there, says Compton Game. For me, that’s a small destination wedding with a bigger party back home, having one or two kids, and owning a house. Being able to picture these things will help you stay committed to saving, rather than losing interest a few months down the road.
But don’t get stress over every possible expense
You want your list to be comprehensive but also manageable and reasonably short. Narrow down your immediate focus to one to three big things so you can feel like you’re making progress, rather than becoming overwhelmed, Compton Game explains. (If you have more than one thing on your list, put them in order of priority.) For me, that means forgetting about paying for college. Yes, if I have kids, chances are they’ll need money for school someday. But since those kids don’t even exist yet, I don’t need to worry about it right now.
Figure out your timeline
How much time you have until your goal event can help you decide the best way to save your money. In my case, I’m almost positive that a wedding is more than a year away. This opens me up to the option of a CD, or certificate of deposit. This is like a savings account, but it locks up your money for a certain length of time, such as 12, 18, 24, or more months. If you need the money during that time, you have to pay hefty fees. However, interest rates tend to be higher for CDs than for other options. For something that’s a year or less in the future, a high-yield saving account, which pays pay more interest than traditional accounts, can be a good choice.
Price it out
It’s hard to save for something when you don’t know how much it will cost. Use your Google skills and search for the price of what your future expense is, being as detailed as possible. I want a small wedding (like uber small—my parents and brother, the guy, and whoever he wants there) in the Caribbean. However, my boyfriend has a big extended family, and I know he is thinking more along the lines of a wedding with 150 people. So, in addition to looking up weddings in Grenada and St. Lucia, I also checked the average price of weddings in New Jersey (where my boyfriend’s family lives) and asked my friend who got married this summer about her budget.
Armed with all those numbers, I decided on a goal amount for a wedding savings fund that I feel comfortable with, keeping in mind that my parents and the man I marry would also contribute. I chose to open a 12-month CD, knowing that when it matures, if the wedding is still a ways away, I can renew it for another year.
Following Compton Game’s advice, I’m putting in no more than 5 percent of my take-home pay each month for now, until the timeline becomes clearer. Because a house and starting a family are so far away I can’t even picture them yet, I’m keeping the rest of my extra cash in a high-yield savings account. And, as recommended by financial planner Sophia Bera, CFP and founder of Gen Y Planning, I’m contributing the recommended 15 to 20 percent of my net income for retirement and keeping about one month’s living expenses in my checking account. Bera also suggests setting up an automatic transfer each month or even each week into your retirement fund, but since I’m a freelancer and never know how much is going to be in my checking account, I set up a monthly reminder to review everything and save what I can.