Young Scrappy Money Podcast 004: Sticking to your savings goals for realsies

In this episode, Michelle discusses her unfortunate surprise 2018 tax payment, how that drained her emergency fund, and the actionable steps she’s taking to make sure that she’s sticking to her savings goals as she rebuilds her savings.

5 Tips from this episode:

1. Be very, very clear about what you want and how much it will cost. (And as a bonus, set yourself timing checkpoints along the way!)
2. Make sure that your savings goal actually fits into your budget.
3. Get a separate savings account for that goal–and label it with the name of the goal to keep yourself motivated.
4. Set up an auto-transfer to make saving easier on yourself.
5. Get right with your why. Knowing WHY you want to accomplish something makes you stick with it even when things get hard.

Other Resources from this episode:

• The Young Scrappy Money Academy Digital Subscription Service
• Young + Scrappy, home to Michelle’s work as a financial advisor and financial coach

Full audio transcript:

INTRO [00:00:00] Hello. And welcome to the Young Scrappy Money podcast. I’m your host, Michelle Waymire. And each week, I’ll be bringing you tips and tricks to help you take control of your finances as well as interviews with people who made big financial changes in their own lives. So join us. And we’ll help you get your financial s**t together.

MICHELLE: Hello, everybody. Welcome to another episode of the Young Scrappy Money podcast. I’m pretty pumped to be here today. I mean, I’m pumped to be alive today. But I’m also pumped to be here recording a podcast with you, you the listener.

For those of you who have given me feedback, who have commented favorably, anything like that, kind of interacted with any social media that we have, I just wanna thank you right out the gate. It’s been very, very gratifying. I want to also thank, admittedly, my mom, who was like the very first person to comment on a blog post that I wrote about this podcast. So thanks, Mom. I’m glad to hear that you and the dog appreciated this podcast.

If you’re listening, and you wanna share your feedback with me, or more importantly if you wanna share your successes, if you start doing any of the things we talked about, if you’re getting good stuff, if you’re changing your behavior, anything like that, shoot me an email. Because I would love to give you a shout-out at the beginning of the podcast so that everybody can also applaud you and celebrate your successes with you. So if you wanna do that, you can shoot me an email at [email protected]. That’s [email protected].

So we’ll get right into it today. I want to talk about goals, more specifically savings goals. And I’ll tell you a little bit about how this came about. So this is— this is truth hour. This is honesty hour right now. Last year, I started the Young Scrappy Money Academy. I was doing a little bit of freelancing.

And because I’m a huge money nerd, I also did something called a Roth conversion on one of my retirement accounts. So the idea is if you have a traditional IRA, and you want it to turn into a Roth IRA, you basically open up the new Roth account. And then you convert the balance to a Roth.

Now, the issue with this type of conversion, or type of transaction, is if you’re not familiar with a Roth IRA, you have to be, you know, paying taxes when the account gets opened. Any money that you put into the account is essentially taxed in advance.

A traditional IRA, that’s not the case. You pay taxes later on when you go to retire and take the money out. So you can see that, as a young person, my earnings are hopefully much lower than they will be in the future. I wanna pay taxes now. And then I want to have tax-free income in retirement.

Anyway, all that to say, I decided to do a Roth IRA conversion and had all of these other little life factors converging so that this year when my CPA got back to me about my taxes, the amount of money that I owed was like, “What?!? Hold the phone. I owe what to the US government?” I’ll be honest. I am super, super privileged here. I am very, very fortunate that I was able to cover that money out of savings.

But because it was so much higher than I thought it was going to be, that’s a huge chunk of my savings, so much more than I anticipated paying. So I was prepared for it, but definitely not as prepared as I should be. And that got me to thinking about our savings goals. Because I think, for a lot of people, we kind of find ourselves in the same boat.

We save money for something that we know is coming up. And then oftentimes, we get caught off guard when that item, or that purchase, or that trip ended up being so much more than we thought it was going to be. And we end up dipping into the money that we’ve kind of earmarked for something else. Or, we decide we wanna do something. And if we don’t necessarily have the money, we’ll reach into our emergency fund, and pull it out, and plan on just paying ourselves back later.

This isn’t necessarily always a bad thing. I mean, some things are genuine emergencies. But it really did get me thinking about the way that we tend to save for goals and how we do our best work when it comes to saving. So for me, now I’m in a situation where my savings goal, my number one savings goal, really is to bring my emergency fund back up to where it needs to be.

[00:04:57] And if you’re listening, and you’re not sure what that number is, I would say if you don’t have an emergency fund at all, I would try and start with $1,000. That’s enough money, usually, to cover at least one serious mishap, right? That’s like one good vet bill. That’s one set of new tires. That’s like one fairly big emergency that doesn’t need to go on a credit card.

If you do have the startings of an emergency fund, you might consider something between three and six months’ expenses. So knowing that if something were to happen to you at work, you had to quit your job, or you got sick, that you would want a couple months of expenses saved up just in case. So I’m back down to the point where I’ve got a little bit of savings. I could cover one big emergency. But it’s definitely not to where I want it to be.

This means that I had to completely overhaul my budget. I feel like I’ve gotten into a pretty good rhythm of what budgeting looks like for me. We’ll talk a lot about that in another episode. I promise. I will give you way too much information on budgeting another time.

For now, suffice it to say that that s**t for me was an overhaul. I had to look really, really carefully at my spending, really, really carefully at how I was moving my money around in order to accommodate this huge new savings goal to get my emergency fund back to where it needs to be. That’s why savings goals have been so much on my mind recently and why I’m hoping that, by being really honest about what’s going on in my own life and telling you a little bit more about my process for how I want to pay back this emergency fund, you might also find it useful. And that if you’re trying to save, if you’ve got savings goals that you’re having a hard time prioritizing, whatever the case may be, that you listen to this, and you’d get a little bit of nugget of wisdom from it.

So I feel like I don’t need to necessarily describe why saving is important. I think we all get the gist there. We know that having savings goals is either crucial to achieving what we wanna do in the long run. Or, at the very least, in the short run, it’s a great way to make sure that we get to have the fun that we wanna have without incurring a bunch of debt.

You have places to go. You have s**t to do. You want financial independence. Saving is satisfying. All of those reasons apply here. The problem is that when it comes to making savings goals, we as humans are not particularly good at it. So before I get into some things that I think you could do correctly, or maybe improve upon, I wanna point out a couple of areas where I’ve personally noticed I tend to go wrong. This is me personally, but these might resonate with you as well.

The first, we don’t necessarily have a clear timeline or a clearly defined finish line for that savings goal. So if you’re trying to save for something that sort of has got a mysterious end date, you don’t have a lot of incentive to actually prioritize it. I am highly deadline motivated. If I don’t give myself a date when something needs to happen by, I can almost guarantee you that s**t is not happening. That’s just how my brain works. I’ve come to appreciate that that’s true for my savings goals as well.

The second thing that I’ve noticed people do wrong when it comes to setting and reaching savings goals is we don’t always have a good idea of how to get there. So even if we have maybe a clear goal or a clear timeline, we don’t usually take the time to actually map out what we want to accomplish dollar-wise. And that can be a little bit tricky, especially for financial savings goals. Again, if you don’t have a clearly defined dollar amount, how will you know whether that savings goal has been achieved?

We also tend to just take on too much. I am a pretty ambitious, type-A overachiever. Some of you listening are probably laughing right now. This is just a true fact about me. For a long time, I thought that I was not a type-A person.

I was, in fact, talking to my dad about it once. And I made some comment like, “I don’t think I’m particularly type A.” And my dad— my sweet, accounting professor, not super loud dad— I think just burst out laughing almost louder than I’d ever heard him. So OK, Dad. Cool. I guess you were right. I am not type A. I am type AAA— not AAA, not like the car service. You know what I mean— A to the max.

So I take on too many goals all the time. I overcommit myself like it is my literal job. If I were a calendar, I would be the worst at it because it would be full all the time. And I’m the same way with savings goals. So I’ll identify, like, the top 16 things I wanna save for. And then I’ll try to save for them all at once. But that rarely works. I will be honest with you.

The other thing that I’ll say just kind of before we move on to what we should do with savings goals, a lot of us when we’re planning to save, we don’t really plan for when things go wrong. So we have— even if we have like this awesome plan, even if we have a clearly defined timeline— we know how much it’s gonna cost. We’re all ready to go. If something goes wrong, and we pull money from that account, if we have to take money away from that savings goal, that type of derailing of progress so frequently feels like failure.

[00:10:20] And we’re not always good at overcoming it. So we don’t plan for obstacles in advance. Now, I don’t wanna spend all the time of this podcast just telling you where we go wrong with savings goals. I wanna actually give you some tips, things that I am trying, or have tried, or am about to try as I am replenishing my emergency fund, as I’m getting my savings back to where I want it to be.

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MICHELLE: So I’ll give you five tips. And you can make of these what you will. But hopefully they’ll help you save a little bit better. The first tip is be very, very clear about what you want and how much it will cost. When I was younger, I had a primary savings goal, which was to go travel as much as humanly possible. Again, this was an immensely privileged savings goal. I’m very, very grateful that that was even an option for me.

But I was traveling as much as I could. And I wasn’t really considering how much it would cost. So whenever any cool opportunity came up, I was on it. I would spend all of my savings on travel. It was just my number one favorite thing.

Now that I’m older, I have to be a little bit more judicious with travel. I have more expenses now. Life is more busy, more complicated. It’s just more of an investment. I also hit that age where, if I’m going somewhere, it’s really hard for me to stay in a hostel.

When I was young, I could get away with— young as in I’m not young now, but you know what I mean. I would get away with like $25-a-night hostels. And now that I distinctly have that feeling, “I’m too old for that s**t,” my fly by the seat of your pants travel plans no longer really work for me.

So when I have a goal, it’s really important to me to figure out highly specifically what I want. General travel is not a good goal for me because I— I’ll spend it on anything that comes my way. If there’s a big trip that I wanna take, for example, I have to know in advance, “I want to go to Berlin in 2019 or 2020. And here’s how much I think it will cost.” I have to give myself the time and research to actually get to a dollar amount.

Once you know those things, you have the information to calculate how much you need per month to get there. So this is taking savings to the next level. If I know that I have 10 months to get to a thousand dollars to go to Berlin, that’s $100 a month. All of a sudden, that savings goal, one, is more measurable. I know exactly what I need to do in order to get to where I wanna be.

But, two, it’s so much more attainable. It just feels more realistic to say x dollars per month than to look at the total price tag of the item and go, holy crap, I can’t even imagine pulling together that type of money right now. So that’s the first tip. Figure out how much the thing will cost in total, how much per month you need to save there to get there in time.

And then as a bonus, we’ll call this tip 1.5 or whatever, tip one and a half. Figure out some checkpoints along the way. So again, keeping with this example of a thousand dollars in 10 months, by the end of month five, you should be halfway there. So this will kind of help you keep score along the way. As you are getting closer to your goal, obviously you should be sort of filling up that bank account.

The second tip that I’ll give you to sticking to your savings goals for realsies, make sure that it actually fits into your budget. Now, I am super guilty of this. I will go all day long, make awesome goals, awesome plans. I’ll even do all the calculations. Again, huge money nerd, we know this to be true.

The problem is all of my really great plans, if they’re not integrated with the rest of my budget, make zero sense. If I’m not using that information as a constraint upon the rest of my spending, that’s where you get into this issue where, you know, maybe you have this good goal. And things are going well. But if you’re saving all your money and running out of money by the end of the month for your regular spending, that’s when we find ourselves in this place where we dip right into those savings.

[00:14:54] So if you’ve ever been in that cycle where you manage to save a lot at the beginning of the month, and then by the end of the month you’ve tapped it all out again, that’s a sign that your goals are not actually integrated into your budget. And be willing to examine trade-offs as you’re thinking about this— a trade-off being, in a world where you can’t necessarily have every single thing that you want, which one do you prefer? If you have savings goals, and you have spending goals, which one is more important to you right now?

And I think that’s ultimately a personal decision. I can’t tell you which of your savings goals is most important. I can’t tell you whether you should save or spend. At the end of the day, that’s totally not my business.

But rather, I would challenge you, as you’re building your budget, be thinking about these things. If you have a dollar amount that you wanna save, what do you have to give up along the way? And how are you gonna make sure that those numbers work out so that you’re not actually tapping into your savings every month?

The third tip that I’ll give for you for actually managing to save, get a separate savings account for that goal. I have so many savings accounts. This is a true fact. I have savings accounts basically for every single goal that I have financially. They’re all separate savings accounts. They’re all labeled with the name of the goal.

This has been such a huge motivator for me. When I have one savings account, and all of my money is just in this little pile, I can justify anything. I’m like, look, there’s money there. There’s this thing I wanna do. Obviously, this is fine.

On the other hand, if I have one savings account for my trip to Berlin, and one savings account for my taxes, and one savings account for my emergency fund, and one for car maintenance, and one for health stuff, I am so much less likely to make willy-nilly decisions about where I’m pulling money from. Because all of a sudden, that money actually has a purpose. It’s earmarked for something that either I care about or I think is fun or something that’s really, really important.

Once I started saving for my car insurance, for example— I pay that every six months. And it’s really tempting to realize that, you know, that’s $600 every six months. That’s not necessarily easy to just pull that money out of thin air. Once I started putting that in a separate savings account and labeling it car insurance, hoo boy, do I think twice about pulling money out there that’s not for car insurance. Because I know that I’m actively screwing myself over if I take money away from that.

On the other hand, we know emergencies happen. Emergencies always happen. It’s just a thing that occurs. But at least this way, if something happens, you have this whole list of savings accounts. And you get to choose what you’re pulling money from. For example, if you need $300 unexpectedly for car maintenance, you might pull it out of your car maintenance account. You might pull it out of your emergency fund.

Or, you might say, this is so urgent, and the money’s not easy to find elsewhere. I’m making a conscious decision to reduce the amount of money I’m spending on this trip, or push the date of the trip outwards, or something like that. You get to delay those savings goals as you choose, depending on what’s more important for you.

The fourth thing that I’d recommend to you when it comes to actually saving for your goals, set up an auto transfer wherever you can. If you are relying on your own very, very fallible human brain to actually transfer money to the things that you care about, you are either a wizard, or you do not have all of the busy brain business that my brain at least has. I mean, I’m not speaking for everyone here. But I will tell you that I am long on ideas and short on time. So if I’m in a situation where I know that I’m saving for something, if I have to remember to make the transfer, it’s just not gonna happen.

I recommend instead— this is something that I do. And you might like it as well. I set up auto transfers that are timed to when my paychecks hit. So right when those paychecks hit, I can make the auto transfer. I know the money’s gonna be there because I just got paid. And I have the freedom to— worst case scenario, if it’s a tough month, you can move it back. But at least this way the money has been separated out, kind of portioned out to where you want it to go— super, super useful.

The last thing that I’ll just touch upon really quickly before we part ways, get right with your why. So this is the fifth recommendation that I have for you. A lot of us have savings goals that we don’t necessarily feel connected to. Some of those are simply because it’s a boring savings goal. I’m sorry. I said it.

I don’t ever give a s**t about buying new tires. It is not exciting to me. I do not find it satisfying. It does not bring me any joy whatsoever. And I understand the utility of not hydroplaning during a storm and ending up in a ditch. I’m here for that. I love that utility.

[00:20:00] But at the same time, I’m just never gonna get excited about putting money aside for something like that. It doesn’t bring me the same feeling as when I look in my travel account, or my fun spending account, or my self-care account. It just doesn’t. So I need to make sure that I’m doing the mental work to feel justified in this savings goal— that I’m actually enjoying at least the utility of it, so reminding myself why it is that I’m doing this thing.

So this is great for goals that maybe we feel like we have to do, but we don’t really wanna do. Retirement is a good one. It’s always hard to prioritize retirement when it feels so far away, and there are a lot of things going on today. Anything that’s sort of medical or practical in nature, you know, it’s not super fun to put aside money for medical bills. Like nobody wants to do that. But it’s super important.

Likewise, you might find that when you’re— even if you’re saving for something fun, you get really gung-ho about it at first. And you’re all in. And you set up your separate account and your auto transfer. And then over time, you might find your motivation flagging a little bit. Like, oh, is this trip really going to happen? Maybe I should go ahead and take money out now or something like that.

I’ve found that it can be useful to write my future self a letter. So if I’m thinking about making that kind of transfer, if I’m thinking about spending the money on something that it’s clearly not for, if I’m just tempted in general, I like to remind myself just why this savings goal is happening. So thinking about it both in the positive sense of— what is this savings goal going to get me that I didn’t have before, or bring me an experience that’s new, or whatever that looks like?

Or, even on the negative side— and I don’t recommend that you necessarily focus on this, but I think it’s important to realize. What are the consequences of not achieving that goal? What will it look like if you don’t do the thing that you say you need to do? How is that going to negatively impact your life? Are you digging a hole you can’t get out of?

Will it force you to take on debt that you’re not ready for? What are the positive and negative consequences of sticking to that goal? And that way, when you have the temptation to spend that money on something else, you can kind of go back to that letter and think about why it is that you’re doing this in the first place. Hopefully, that will just help you keep a little bit more on track.

So all that to say, in the next few months or so, if anybody sees me, I will be pretty aggressively putting money towards my emergency fund. I have decided that really is my number one priority right now. If you see me at a bar ordering too many drinks not during happy hour, you should shame me for it. You should come right up to me and be like, Michelle, that should be in your emergency fund. Quit drinking your emergency fund. Or, if I’m shopping or something like that.

Not that, you know, shame is the best way to handle those situations. Everybody responds differently to different things. I’m mostly joking. But that is my priority. I have decided that’s my priority. I have my separately labeled savings account. I have set up auto transfers starting in April.

And I’m gonna do this thing. For sure I’m gonna do this thing. And it feels a little stressful. And it feels a little bit overwhelming. But I am definitely excited to get to a place where I know that if something happens, I absolutely can have my own back.

So what about you? What are you saving for? I hope it’s something fun. I hope it’s something interesting. I hope it’s something useful or brings you joy. Drop me a line. Send me— send me a little email at [email protected]. I’d love to hear from you. Tell me about your goals. And I’ll do the same.

So I think that’s it for today. I hope you have a wonderful rest of your day, whatever that looks like for you. I hope you have a great weekend if you’re listening when this comes out. Or, I hope you have a great whatever, day, life, week, everything if you’re listening at another time. So that’s it. I love you. Bye.

END CREDITS I hope you enjoyed this episode of the Young Scrappy Money podcast. If you want to read about my work as a financial advisor and financial coach, you can do so at www.youngandscrappy.com. That’s www.youngandscrappy.com. Thanks again for listening.