Your 2019 resolution: To seriously pad your emergency savings. Also, your 401(k). And 529. (Your four-year-old will be college bound in T minus 14 years, after all.) But all this begs the question: With so much to save for at once, how the heck do you prioritize?
First things first: Make a list of *what* you want to save for
Before you can start figuring out which order to save in, you need to start thinking about what you’re saving for. Make a list that includes it all—emergency fund, college tuition, an African safari in 2020. Then, next to each item on the list, assign a timeline or deadline. The goal of this exercise? To know what you’re saving for but also exactly when you need the money by.
Next, rate each savings goal as a need, want, or wish
If saving for your kid's college is a need, but going on an African safari is a want or even a wish, you'll want to make sure you're on track to satisfy your college savings requirement first. In other words, ask yourself: Is this savings goal critical (i.e., under no circumstance do you want your kid to take out student loans) or is it a "nice to have" (i.e., you'd like to be able to contribute to school, but if they have to take out loans, you're OK with that)? This way of thinking can help you prioritize, so you know you're allotting cash to satisfy all of your goals.
Now, the tricky part: Calculate how much to set aside
To do this, you'll need to look at your list of savings goals and then back into how much you need to be setting aside for each one, based on your timeline. Some examples: Say you want $1,500 by August 2019 for an end-of-summer getaway to Cabo and it's January. You'll need to start saving $215 a month. Or let's say you want to pay for four years of college at a private institution for your newborn, you'll need to start saving $1,400 a month, which will add up to $300,000 by the time they turn 18. Of course, these are estimated numbers, but you can use an online calculator to figure out exactly how much you need to be saving today to hit all your down-the-road targets.
About that emergency fund
This should actually be priority number one, because you need a financial cushion for life's inevitable curveballs. Without it, you'll end up making a poor financial choice like using a credit card or tapping other savings (your 401(k) or your 529), which throws off your entire plan for your other savings goals.
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