How to save for multiple goals at the same time

Shannon writes in with a great question:

Skip to next paragraph Trent Hamm

The Simple Dollar is a blog for those of us who need both cents and sense: people fighting debt and bad spending habits while building a financially secure future and still affording a latte or two. Our busy lives are crazy enough without having to compare five hundred mutual funds ? we just want simple ways to manage our finances and save a little money.

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I?m trying to figure out how exactly I should save for several goals that I have. Here are the things I want to save for:

1. A BlendTec blender ? $300
2. A complete refinishing of the downstairs bathroom ? $3,000
3. A vacation to Germany next summer ? $5,000
4. A car replacement ? $12,000
5. A house down payment ? $25,000

How do I prioritize these things? How do I go about saving for different goals? Where do I put these different batches of money?

This is a great question, one that you spelled out incredibly clearly and one that most of us struggle with to some extent.

Let?s break down your question into multiple pieces.

How exactly do I save for multiple goals at once? The easiest way to do this is to choose a bank that facilitates this process quite easily. I can recommend two banks for this ? ING Direct and SmartyPig. I?ve used both of these banks. They both have great customer service and they each have a set of tools to make saving for a lot of goals quite easy.

With ING Direct, you simply open an account there, which will give you a single savings account. Once you?ve done that, it?s quite easy to simply open additional savings accounts and give them each nicknames. Just create an account for each goal.

With SmartyPig, you actually create savings goals within your account. You can create as many as you?d like.

With both of these, you simply link your new account to your regular checking account and set up automatic transfers to fund each of the goals or specific savings accounts. Easy as pie!

But how much do I save for each goal? The key thing to remember with any and all savings goals is that you?re trying to come up with a certain dollar amount at a certain time. Shannon certainly knows what her dollar amounts are, but she?s mostly unclear as to the timeframe.

Let?s come up with some examples of deadlines that Shannon might decide on.

Shannon wants the blender before Christmas, so she has three months to save for the $300 blender.
She wants to refinish the downstairs bathroom next spring, so she has six months to save for the $3,000 renovation.
She wants to travel next summer, so she has nine months to save for the $5,000 trip.
She wants to replace her car in two years, so she has twenty four months to save for the $12,000 car replacement.
She wants to buy a house in four years, so she has forty eight months to save for the $25,000 house down payment.

So, how much does she have to save per month for each goal?

For the blender, she needs to save $100 per month ($300 divided by 3 months).
For the downstairs bathroom, she needs to save $500 per month.
For the trip next summer, she needs to save $555 per month.
For the car replacement, she needs to save $500 per month.
For the house down payment, she needs to save $521 per month.

Now, that seems pretty stiff, doesn?t it? That?s a total of about $2,200 per month to save. What if Shannon can only save $1,000 per month for her goals?

There are two ways to do this. One is to simply prioritize. Is there one goal (or more than one) that can be postponed for a while?

The other is to simply focus on the goals chronologically. In other words, she goes through that list and applies the full $1,000 toward each goal on the list, with the nearer-term goals at the top and the longer term goals at the bottom.

So, during the first month, she?d put $300 toward the first goal, completely fulfilling it. She?d then drop $700 toward the second goal. Over the next two months, the full $1,000 would go toward the second goal. In December, she?d put $300 toward the second goal, fulfilling it, then put $700 toward the trip goal. This will get her pretty close to fulfilling all five of the goals.

In other words, if all of the goals have a high priority, put all of your savings toward the one with the closest deadline. When it?s fulfilled, move on to the next goal.

Good luck, Shannon! You?re definitely on the right path.

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