An Easy Tool to Start Saving With Quicken: Savings Goal Accounts

Saving can be made easy. I use a concept Quicken calls Savings Goals accounts.

Basically, these are "virtual accounts" that are not real bank accounts. However, you can save money into these accounts and it makes it look like the money is not really in your bank account any more. In Quicken, check out a feature called a "Savings Goal Account". (go to the "Planning" menu and look for the entry "Savings Goals").

Savings goals are virtual accounts that let you track specific goals, without having to have multiple accounts. I use lots of savings goal accounts. The nice thing is that it creates virtual transfers in your checking account (so your balance looks lower to reflect the money you moved to the savings goal account). However, if you ever want, you can easily have Quicken show you the real balance in the account. To withdraw the money, you simply to a virtual transfer back to the fund. A Savings goal account can also hold funds from multiple real accounts (e.g., from bank accounts, money market accounts, etc.).

Here are the savings goals accounts I have:
(I number and label these so they are ordered and easy to ID)
"2Goal-EmergencyFund"
"3Goal-MiscBigExpense"
"4Goal-PropertyTax"
"5Goal-VacationFund"
"6Goal-ChristmasFund"
"7Goal-NewCar"

Then, I transfer money into these through the year. This lets me "smooth" my spending as I talked about in earlier posts. For example, if I want to spend $1,200 on Christmas (including gifts, travel, holiday treats, dinners etc.), then I know I had better saving $100 a month through the year. If I don't save $100 a month through the year, then I am going to have a credit-card shock come January. Unfortunately, too many people get into this loop. This is about getting ahead of the curve.

Let's look at two people: Spendy Sam and Thrifty Tom. Spendy Sam, who neglected to plan for the holiday spends freely over the month of December. Sam figures, "I will just buy everything on my card and pay it off by next year". He has a blast and spends the holiday season having fun and having a ball shopping, going to dinners with his friends and going on a special holiday skiing trip. January rolls around. The toys are broken, food is eaten, parties are over. Sam doesn't have much to show for last December except for a lot of good memories, and a $1,102 credit card bill. Nevertheless, he vows to pay it off by December. Let's say that his interest rate on the card is 16%. Sam is going to need to send $100 to the credit card company every month. He does so, and at the end of the next December, his balance is back to zero. However, he had to pay interest every month to the card company. In the end, he spent a $97.85 in interest payments. Tom had to pay $1200 over the year but only got $1,102 worth of value for that money. Furthermore, it is the holiday again and Sam doesn't have any money saved as he was spending all his extra cash paying off last year's credit card bill. "The holidays only come around once a year and I have to live life!", Sam says, pulling out his credit card again the next year to treat his friends to holiday gifts from Macys.

Now, let's look at Thrifty Tom. Tom knows in January that next holiday season will be here soon. He starts saving $100 a month in the local money market account. He is getting an interest rate of 4.5%. At the end of the year, when it is time for the holidays, Tom has $1,225.06 in his account from interest payments. He goes into the holiday knowing exactly how much he can spend. Unlike Spendy Sam, Tom knows he has to allocate a certain amount to gifts, then dinners out and special occasions. For Spendy Sam, "The Sky's the Limit" as he has a credit card and will always "be able to pay it off later.".

Both Thrifty Tom and Spendy Sam spend the same amount paying their holiday bills ($1,200 over the course of a year).

Spendy Sam:
Amount Spent Paying off Card: $1,200
Amount of "value" received, spent during the holiday: $1,102

Thrifty Tom:
Amount spent saving during the year: $1,200
Amount of "value" received spent during the holiday: $1,225

Thrifty Tom had a budget that was 11% higher than Sam's for holiday spending. 11%!!!!!!! How many of you would love to get an 11% raise? Of course, everyone would. Well, the truth is that you can give yourself the raise if you start spending wisely and saving for goals rather than living in a world of instant gratification and "pay if off later". I have found that Savings Goals accounts go a long way to enabling this reality. The key is to break the cycle and get ahead of spending. Both Spendy Sam and Thrifty Tom enjoy the holidays. They don't hold back and they are not penny-pinchers. Thrift Tom just happens to send $100 to his bank account every month while Spendy Sam happens to send the same $100 amount to his credit card company every month. Thrifty Tom is far ahead.

Get ahead of the curve and get control of your life. It really isn't too hard to do this once you put the right automation tools in place and you have the right discipline. Also, when you start doing this, you learn how to do it in many other areas in your life. Saving for your goals will enable you to build wealth quickly and will help you avoid debt and build financial discipline.