How to save $20,000 in a year
It's easy once you break it down into simple steps - here's how.
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Setting yourself a goal to save $20,000 in a year might seem aggressive, but it's definitely achievable.
The key? Break it down into a smaller goal of saving $1,666 a month, and it's suddenly a lot less daunting. And make sure you're getting a solid rate of interest on your savings account, so your savings are working for you. (Easy tip: the Finder app can automatically compare your existing account's rate and tell if there are better rates out there.)
$20,000 seem to much? Just apply the same rules to a smaller amount. With any savings goal, you need to set yourself a clear target and design a budget to help you achieve it. Here's how to do that.
Step 1: Set a goal
Think about why you want to save. Are you planning a holiday? A renovation? A home deposit? A new car? Want to pay off your mortgage? Need to put money aside for next year’s school fees? Regardless for what it's for, having a clear financial goal helps you to focus on why you’re saving in the first place.
A clear goal will also help you determine the amount you need to save and your time frame for reaching that amount. For example, your goal could be to save $20,000 to take the family to Disneyland in Paris in a year from today.
Setting a specific goal is much more effective than having a vague goal like "Save some money so we can go for a holiday someday" Remember, goals work best when they're realistic, measurable, achievable and have a set time frame for completion.
Step 2. Set a budget
The next step is to look at your budget. List everything you need to spend money on each month and the amount of money you bring in each month. Outlining your income and expenses helps you to see where you’re spending too much and where you can save money.
When putting together your budget for the year, set yourself really clear goals of how much you want to save along the way. For example, to save $20,000 a year you need to save $1666 a month and $385 a week. Set yourself a reminder at the end of each month to check how you're going with your budget. If you've a bit under one month, you'll know you need to be extra frugal to make up for it the following month.
Step 3. Make it happen
You need to be continually checking in on your progress against your budget throughout the year. If you're having trouble meeting your monthly (or weekly) targets, you need to look at your spending and make some changes.
If you've gone through your spending with a fine-toothed comb and can't find anywhere to cut back, you could try to increase your income instead. Ask your boss for a pay increase, switch to a new job that offers more money or take up a side hustle.
If you find yourself constantly caving to impulse purchases, you might want to consider a savings account or term deposit that offers bonus interest when you leave your money untouched. That will reduce the temptation to spend your savings, and you'll earn more interest too.
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