Estimating exactly how much cash you will need to hit certain life milestones — for a car, home or baby, for example — is a crucial step, as much as you might want to avoid it. “Get into the mindset that you are going to save a specific amount of money early in life.
Call it a “freedom” fund. The idea is to aspire to enough financial independence that — at least at some point — you won’t have to rely on anyone else if you don’t want to.
Money is a big reason many people feel tied down by jobs or relationships. So building your freedom fund will help you unshackle yourself from financial binds, whether that means moving out of your parents’ house or quitting your job and moving to India.
This kind of fund should include enough money to support your lifestyle for at least three to six months, like an emergency fund — though if you will really want to escape, you could try to save double or triple that. The important thing is starting, even if you need to start small.
Whether you are planning to buy a house, pay for a wedding or hope to have children, an “adulting “or family fund can provide the foundation to achieve one of many grown-up life events. This account is meant to build funds that you will use between one and 10 years down the road. Where do you start?
Set your ultimate financial goal number based on the total amount you’ll need and determine how much you can afford to stash away from each paycheck. If you are saving with a partner, take a hard look at your salaries. Splitting the savings 50-50 isn’t always logical — the person who makes more should probably save more.
Already knocked your freedom and adulting fund goals out of the park? When it comes to saving for your dream — whether it’s a fancy car, a trip or an early retirement — approach it as you would any other money-saving goal by first estimating an amount.
Next, based on your goal total, figure out how much you will need to save each week or month and arrange to have that money automatically deposited into your dream fund or separate account. If you get a raise or receive extra cash through an extra job, tax refund or inheritance, sweep that money into your dream fund before you spend it.
You may have better luck achieving your goal if you write it down: In a study on goal setting, those who wrote down their goals and dreams were more likely to achieve them than those who did not.
Finally, remember, not all “dreams” are necessarily financially frivolous. Nearly 10% of wealthy people in a recent survey said they diversify their investments by parking cash in art, wine and high-end cars. You shouldn’t expect this to pay off — it’s always a big gamble whether you’re investing in a winner — but growing your money, even more, might be a fun, unexpected side effect.