I’m a big fan of setting goals and creating plans - both short-term and long-term.  It’s important to me to clearly define my financial goals, because I’m trying to live my life without borrowing money.  Obviously, this means that I need cash - and quite a bit of it - in my savings account.

I only have one savings account, but the money in that account is allocated to very specific goals, according to my various short-term and long-term plans.

Here’s the current breakdown -

Emergency Fund -

I have enough money in my savings account to cover 12 months worth of household expenses.  I do not plan to use this money except for a major life emergency - think job loss, sickness of a child, or other unexpected life-event.  This money just sits in the account, as a preventative against life’s curve balls.  It is our (my wife’s and my) security-blanket.

Annual Expenses -

Certain bills are due once a year.  There is no need to keep the money that is budgeted for these expenses in my checking account, not earning any interest.  Instead, I divide the annual expense by 12 and transfer that amount, each month, from my checking account to my savings account.  Then, when the annual bill is due, I transfer the entire amount due from my savings account to my checking account and I make payment.  It is vitally important, when you are making your monthly budget, to include any annual or non-monthly bills.

• Automobile Insurance Premium
• Automobile Taxes
• Renter’s Insurance Premium
• Club Fees

Short-Term Savings Goals - (less than three years)

Lets assume that in the next three years I want to purchase a new washing machine, a new dryer, and a new sofa.  I can -

A.  Save for one goal (purchase) at a time.  For instance, if I want a new washing machine, I can allocate all of my short-term savings to the purchase of a washing machine.  In my budget, I’ll create a line-item labeled washing machine.  Suppose I have a total of $300 for short-term savings and the washing machine costs $900.  For three straight months, I will transfer $300 from my checking account to my savings account.  At the end of three months, I’ll transfer the entire $900 from my savings to my checking, and I’ll buy the washing machine.  Then I will begin to save for the dryer.  Once I buy the dryer, I’ll save for the sofa.

B.  Save for multiple goals (purchases) at a time.  Let’s assume that the washing machine will cost $900, the dryer $900, and the sofa $900.  I will create three line-items, one labeled washing machine, one dryer, and one sofa.  I’ll then transfer $300 from my checking to my savings, but in my budget, $100 will be allocated to the washing machine, $100 to the dryer, and $100 to the sofa.  In nine months, I’ll have enough to buy all three items.

It really doesn’t matter which way I do it.  It all really depends on how many budget categories I want to keep up with and how detailed I want my plan to be.  Obviously, plan B can change to plan A at any time, and vice-versa.  If I’m following plan A, and I’ve saved up enough to buy the washing machine, I might change my mind, and wait another three months, so I can buy the washing machine and dryer as a pair.  Or, I might find a deal on the sofa, and buy it first.  The idea here isn’t to bog myself down in the minutiae of a thousand different budget categories.  The real goal is to think beyond today.  If I know that I’m going to need, at some point in the not-so-distant-future, a new washing machine, I need to start saving today.  If I don’t, I won’t be ready to pay cash when my old washing machine dies.

• New Furniture
• New Appliances
• Newer Automobile
• Dream Vacation

Long-Term Savings - (three to seven years)

I am trying to save enough money to pay cash for a house.  This is a big goal, and I want to accomplish it in a relatively short amount of time.  If I were to focus my savings, exclusively, on this particular goal, I wouldn’t have enough money to cover some of my smaller, short-term goals.  So, I save for my long-term goal just like I did for my short-term goal, but with a twist.  Every extra dollar of income, above and beyond what it takes to meet my other savings goals, is allocated to long-term savings.  This includes income from my business, income from eBay sales, gifts from family members, etc.

In my budget, there is a line-item labeled new house, and a portion of my regular paycheck is transferred from my checking account to my savings account, each month, and is allocated for my future home purchase.  In addition to those regular transfers, any additional income that I might receive is immediately transferred into my savings account and is allocated for a future home purchase.

Various -

From time to time, I’ll also use my savings account to store Roth IRA or ESA contributions, before I transfer those contributions to my Roth, my wife’s Roth, or my kids’ ESAs.  I’ll probably stop doing this, once I move away from annual contributions and towards monthly contributions.

I’ve been very happy with ING Direct and their Orange Savings Account.  If you want, you can actually open sub-accounts, link them to your primary account, and keep your money separate that way.  I don’t do this, but I know many who do.

Keep in mind, many savings account limit the number of withdrawals you can make each month (or quarter).

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One of my goals for 2008 is to rebuild my non-retirement savings. In 2007, we purchased a new-to-us minivan and in early 2008, we had a new baby (and purchased several baby-related items). These expenses worked together to dramatically reduce our non-retirement savings and I’ve been working diligently to rebuild them.

I just made a transfer from my primary checking account to my ING DIRECT Savings Account. My current balance now rests at $5,000. My goal for 2008 is $16,000. Bright readers who can quickly do math in their heads will have already calculated that $16,000 divided by 12 months is $1,333.33. So, after 5 months, I’m a little behind. O.K. I’m a lot behind. In fact, I’m $1,666.6 behind. But, alas, I have a plan!

In just a few weeks, I should receive my economic stimulus rebate check. The amount on the check will read $1,800. I’ll deposit the check and - abracadabra - I’ll be right back on track.

Click here to see my current savings chart over at the No Credit Needed Network - NCNSavings2008.

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Here’s how I manage to fully-fund my 403(b) retirement account, my Roth IRA, save for my kids’ college, and maintain a healthy emergency fund.

I pay myself first -

Before I receive my monthly paycheck, a portion is withheld, equal to 1/12 of my annual 403(b) contribution.

As soon as I receive my paycheck, I deposit it in my checking account. I then schedule several transfers. First, I transfer a fixed amount to my non-retirement savings account. Second, I transfer an amount to either my Roth IRA or my wife’s Roth IRA, depending on which account I’m working to fund in a particular span of months. Currently, I am working to fully-fund my wife’s Roth IRA.

I pay myself last -

At the end of each month, I take any amount remaining in my checking account (above a $100 cushion) and transfer it to my savings account. From my saving account, I transfer funds to either my daughter’s Education Savings Account or my son’s Education Savings Account, depending on which account I’m working to fund in a particular span of months. Currently, I’m working to fully-fund my daughter’s ESA.

I pay myself along the way -

When I sit down to create my monthly budget, I use only the income from my regular job. Any other income that I might receive, whether it be from blogging or writing or selling things on eBay, is deposited into my business checking account. The vast majority is then transferred to my non-retirement savings. A small amount remains in my business checking and is used to cover the cost of doing business.

At the end of the fiscal year, I make a contribution, from my non-retirement savings, to my SEP-IRA (a type of retirement account for people who have self employment income). The amount of this contribution will vary, depending on how much additional income I generate from blogging and writing.

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As many of you know, not only do I blog here at No Credit Needed, I also manage the No Credit Needed Network. Over at the Network, members can create a personal finance goal and track their progress. Those members who have websites can post their progress charts on their websites.

Recently, NCN Network member DebtFree-Revolution paid off all non-mortgage debt. I asked DFR to write a guest post, hoping that it would inspire others to join the network and track their progress.

NCN has asked if I’d be interested in writing a guest post about becoming debt free and achieving my goal, as an inspiration to everyone else still struggling with the debt monster. Absolutely!!!

I am hollering back to everyone still climbing the mountain - “DO IT!!! It is SOOO worth it!!!”

It took me fourteen months to achieve my goal. Fourteen months of refusing to give in, refusing to quit refusing to give up the dream.

I’ve been called stubborn at times - and I even went out and got the proverbial extra weekend job delivering pizzas to get it done as fast as I could. I wanted OUT of debt!

At the beginning of my journey, it was slow going and it seemed like I wasn’t making progress. Then I found the NCN Network, and made my chart. Here was what I needed: a graphical visual representation of my actual progress. The pie slice expanded …sometimes so small I had to look at the percentage number to be sure it really was moving, but it still moved. Then it picked up speed as the number of payments shrank and the amount being paid off per month began to grow.

Then it happened - The Big Day when I became officially debt free (except for the house)!

You can do it too. Get mad! Get determined! Get out of debt!

I want to thank DFR for this inspiring post. If you are in debt (or looking for great articles about staying debt free), I encourage you to visit DebtFree-Revolution!

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One of my goals for 2008 is to rebuild my non-retirement savings.

As of February 18, the balance in my non-retirement savings is $4,500.

My goal for 2008 is $16,000.  With the new baby on the way, I feel that it is important to have some extra cash ‘on hand’.  With that in mind, I will rebuild my non-retirement savings, and then I will focus on funding my wife’s Roth IRA for 2008.

Click here to view my No Credit Needed Network Chart - NCNSavings2008.

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