Want to save money? Focusing on ONE specific goal can be more effective than spreading yourself (and your money) too thin.
Conventional wisdom says that the best way to save more money is by earmarking small amounts of money towards a wide gamut of goals.
For example, your monthly savings might look like this:
- My next car purchase – $75 per month
- A "rainy day" fund – $100 per month
- A down payment on a house – $150 per month
- A trip to Italy – $50 per month
- A new dishwasher – $50 per month
- Total Savings – $425 per month
But this spread-yourself-too-thin strategy can be disheartening. After 1 year of sacrificing concert tickets, restaurant meals and cute new clothes, you've only managed to save $600 towards that trip to Florence and Rome. That won't even buy your airline ticket.
What's wrong with this savings strategy? Lack of focus.
(Now, a quick disclaimer: I'm not saying this is a bad strategy. If it works for you – awesome! This post is written for people who have tried this strategy, felt disheartened by their lack of progress, and – as a result – have given up on their dream trip to Italy.)
What's the alternative? Focus on ONE goal at a time. Stop spreading yourself thin.
Here's what that model would look like:
- A "rainy day" fund: $425 per month
After 8 months, you'd reach your goal of a $3,400 "rainy day" fund, at which point you turn your complete, unadulterated focus to another goal.
You start putting $425 per month away for that trip to Italy. After 6 months, you have enough saved to go there.
When you return from Italy, you start focusing on the next goal: a new dishwasher. Within 1 month, you've got it.
Isn't that more satisfying than spreading your goals too thin (and therefore needing a longer time frame to reach those goals)?
This idea comes from the "snowball" method of paying off your debt. It's a theory that states that you should pay down your smallest debt first, regardless of its interest rate. Focus all your money on just one specific debt. Once that debt is repaid, focus all your money on the second-smallest debt. And so forth.
That theory has many critics who argue that you'll pay a lot more in interest by focusing on your smallest debt, rather than your highest-interest debt. But its supporters say that focusing on one small goal at a time is more effective than spreading yourself too thin.
The hyper-focused method may (or may not) be the best method for repaying debt – but it's certainly a great way to save for a goal.
by Paula Pant