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Biggest and Most Typical Short Term Savings Mistake!

July 3, 2011

Ok, maybe “Biggest and Most Typical” is an overstated title, a bit, but not by much. Today’s short post covers one mistake that many families fall into, mine included. It is kind of a trap, and it leads a lot of people to feel so much frustration that they give up on other financial goals and go down in monetary flames all of the time.

The mistake? Simply put: People make savings goals in a vacuum. Said in another way, people make short term savings goals, forgetting about every other financial goal they have, and ignoring other financial factors, and then feel really let down when the reach the end of their goal period and have come up short. It happens to us periodically. I’ll get all excited about some future thing we want to build/buy/fund, and then I put together a “plan” in my head detailing how we’ll set the needed money aside each month until the time of purchase. Months later, I wonder why we aren’t able to hit our goals.

Here’s an illustration: My sweetheart and I decide, while driving home one day, that maybe we need to build a deck. The deck will cost $2000. We start thinking about this month and realize that we were able to put $500 in the bank and savings. Our minds begin racing, and simple math tells us that we could save up like this for four months, and build the deck during the fifth month. What our minds don’t do, is start to add up possible costs that we might have over the next four months. We forget that we also signed one of our sons up for soccer that will cost extra money we don’t normally spend each month. We forget that we had a vacation planned that will be a one-time expenditure that is abnormal to our monthly budget. We forget about car registration that we typically take out of savings, etc., etc…you get the point. And at the end of four months, we’ve managed to squirrel away $1200 and can’t work on our deck. Then we’re let-down, and have less of a desire to try to save up for something else.

Better plan: Look back over 6-12 months of budget and see what we typically put away each month. Look forward over the course of our goal-time and see what expenditures we can guesstimate and plan for. Then if we still think we can save $250 a month for our project, we ought to plan on $200 just to be safe. Lastly, we ought to plan to have things happen that we can’t foresee and can’t control, just so we won’t be too let-down.

Lately we’ve been pretty good at setting and hitting decent goals. But a day or two ago I was imagining buying some thing and I quickly concocted the plan that would provide the money…and instantly realized that I was devising a plan without thinking about all of the other things we’re planning for…thought I’d share!

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