Savings goal

A savings goal has three parts, and a wish is missing at least one of them: an amount, a date, and a purpose. The three become a monthly figure by one division, and the monthly figure goes into the budget as a line paid on payday, like a bill. A goal is on track when the balance set aside has grown by the share every month since it was set, a check that takes one glance on the first of the month. A $12,000 car down payment in thirty months, with $1,500 already saved, is a $350 line and nothing more mysterious than that.

In a sentence

• "Our savings goal for the car is $12,000 in thirty months, which works out to $350 a month."
• "A savings goal without a date is a wish; the date is what turns it into a monthly amount."
• "Each savings goal has its own line in the budget, and all of them share one savings account."

How it works

1. Name the purpose and price it in full. The down payment, the trip with flights and hotel, the laptop with its tax and case.
2. Set the date, the month the money has to be there. A goal that could happen any time gets a rough date, because the share cannot be sized without one.
3. Subtract what is already saved toward it.
4. Divide the remainder by the months until the date. That is the monthly share, and it goes into the budget as a fixed line, planned before the discretionary categories get their amounts.
5. Move the share to savings on payday, and check the balance against the target each month. When the goal is reached, its share rolls to the next goal rather than back into spending.

Monthly share = (goal amount − already saved) ÷ months until the date

Interest helps on a long goal and barely on a short one, so a share computed without it arrives a little early, the safer error. A share that does not fit means the goal is smaller, later, or partly borrowed, and knowing that in month one is what the date is for. Several goals run as a list in priority order, funded from the top, in one savings account with a note of what each balance covers.

An example

In an account paying 4.00% APY, the example's assumption, $350 a month from a $1,500 start passes $12,000 in month 29 and stands at $12,669 after month 30, of which $669 is interest. Counting that interest from the start, the share could be $329 instead of $350; most households keep the round figure and arrive a month early. In checking, with no interest, the goal takes exactly thirty months, and a $300 share stretches it to thirty-five.

Why it matters

A goal with a date and a share is the difference between saving for something and financing it. An $1,800 laptop saved at $200 a month takes nine months and costs $1,800; the same laptop on a card at 24% APR, paid at the same $200 a month, takes eleven payments and costs about $2,004. The wait also tests the want: a purchase saved for over nine months is still wanted in month nine, or it is quietly dropped around month four, which is the budget's way of saying it was never the priority.

The mistakes it prevents are the two that quietly sink saving. A goal without a date has no share, so it is funded from whatever is left, which in most months is nothing. Goals funded equally treat a trip in ten months and a car in three years as the same thing, so the trip arrives short and goes on a card while the car fund sits ahead of a date that has not come.

Savings goal versus sinking fund

A sinking fund is a savings goal for money you will certainly spend; a savings goal is usually for something you want. The arithmetic is identical, an amount and a date turned into a monthly share by division, and both can share one savings account with a list that says which dollars are which. The difference shows when the budget is short. The sinking fund's expense, the insurance premium or the property tax, arrives whether or not the money does, so its share is the last line cut; a goal's date can move. See Sinking fund.

Common questions

Is a savings goal the same as a sinking fund? The mechanics are the same, a monthly share toward an amount by a date. A sinking fund is for an expense that is certain, and a savings goal for a purchase you choose; the fund's bill lands whether or not the money is there, and the goal's date can slide if the budget needs it to.

Where should I keep the money for a savings goal? In a savings account, separate from the checking you spend from, where it earns interest and is not read as spendable. Money needed within a few years should not be invested, because the market can be down in the month you need it.

What if I cannot afford the monthly share? Move the date out, lower the amount, or start with what fits and raise it later. A goal funded every month at a smaller share beats one that stalls at the right one.

Should I save for a goal or pay off debt first? After a small emergency cushion, high-rate debt comes before every goal except one with a fixed date and a real consequence. A trip in ten months can wait for a card at 24%; a car that will not pass inspection in six months cannot. Put the debt payment in the priority order as if it were a goal, and it usually lands second.

Go deeper

• The Savings goal calculator works out what to set aside each month to reach a savings goal by a date, or how long a goal takes at the amount you can save now, with the account's interest counted along the way.
• How to budget for several savings goals at once runs four goals on $700 a month in priority order and shows what happens to the shares when the first goal is reached.
• How to save for a big purchase inside your budget instead of on a card prices the same laptop saved first and bought on a card, and keeps the line running after the purchase.

Where it shows up in Zypper

Zypper holds a savings goal as a budget category that carries its balance. Give the goal a category with its share as the monthly amount and turn on Roll over unspent budget, and the carried balance appears beside the amount and grows by the share each month, with a Starting balance for what has already been saved. When a goal is reached, change its amount and the next goal's from that month forward with Apply to [month] forward checked, which is the share rolling down the list. The transfer that carries the month's saving to the account is recognized as a movement between your own accounts rather than spending, and the account's balance counts toward net worth. See Rolling over unspent budget and Creating your budget for the details, or get started with Zypper to give each goal its line.