Budget, Savings

How To Save Money For A Mid-Range Goal

I am not a fan of borrowing money, so it’s important that I plan for and save for mid-range goals.  I would define a mid-range goal as any major purchase or expense that I might have to make in the next 2 to 5 years.

Right now, we’re focusing on saving enough money to buy a newer automobile for me, some new furniture for our youngest child, and a sprinkler system for our lawn.

Obviously, some goals are more important than others.  An automobile is more necessary than a sprinkler system.  We try to create a list of reasonable goals, incorporate that list into our monthly budget, and save accordingly.

We only began to save for mid-range goals after we established an emergency fund.  The money in the emergency fund is for unforeseen expenses.

Here’s our current system, one we’ve used in the past to successfully save for major purchases –

1.  Using our monthly budget and my favorite budgeting tool, You Need A Budget, I create a budget category for each of our mid-range goals.

2.  I estimate the cost of each future goal, over-estimating by 10% to account for inflation.

3.  I calculate the number of months between the time I set the goal and the time I plan to make my purchase.

4.  I divide the cost by the number of months, and this tells me how much to allocate, each month, to that particular budget category.

Here’s an example.  If 36 months from now I want to buy a $12,600 automobile, I need to allocate $350 to that budget category, each month.

Now, I realize that this isn’t rocket-science.  The real issue isn’t figuring out how much I need to save – the real issue is actually saving the money.  Yes, it’s important that I plan for the future purchase.  Yes, it’s important that I budget for the future purchase.  But the most important thing that I can do, so that I can meet my ultimate goal of remaining debt-free, is to follow through, month-after-month, and stash that cash away.  Which brings me to –

5.  Each month, I make a “payment to myself” by depositing my allocations into my ING Direct Savings Account. I just make one deposit, for the total amount of all my mid-range goals.

I’m not overly concerned about the amount of interest my money is earning.  I know some folks who use a CD ladder or other savings vehicle to save for these types of purchases, but I prefer a simple online savings account.

Having these mid-range goals incorporated in our monthly budget really encourages self-discipline.  If it’s in the budget, it gets funded.  If it’s not, it gets forgotten.

Final Note:  I can – if necessary – use the money allocated for one goal to pay for another.  The money is, after all, mine.  The purpose of the various categories isn’t to box me it, but to keep me motivated.  In effect, I’ve created a debt – a debt that I owe myself.  Lucky for me, I don’t charge any interest!

11 thoughts on “How To Save Money For A Mid-Range Goal

  1. Excellent post. I just paid my car off and it’s only 2 years old so I hope to have it for at least 8 years. I feel like I should start setting aside money now for it’s replacement but it’s tough to really want to budget for that. If I start doing it now though it’s that much less per month.

  2. I created a budget with your simple budget example and I still have $580 left over for the month….do I really need to assign ALL my money to a category or should I use this money has a cushion in my checking account?

  3. Thanks for this most excellent post. I recently had some major vehicle repairs come up and my first reaction (for a few seconds) was “OMG how am I going to pay for THIS, and right before the holidays too?” Then I realized that I do have the money! I was actually saving for a set of tires but I don’t need them just yet, so the major repairs are not a major issue like they would have been in the past.

    I love my ING subaccounts. Seeing progress toward particular goals is a really valuable tool for me, helping me to stay on track. Rock on!

  4. Tate,
    I have a budget category for every dollar, including one labeled “miscellaneous” for any “left over” funds.

  5. I have found that setting goals using Quicken has been very helpful in reaching mid term or short term goals. It allows you to visualize how long it will take to reach your goal which I have found to be very beneficial

  6. I really enjoyed the article. Don’t forget though, we are talking about up to five years from now using the money. With money markets and even CD’s these days paying around one percent, it is unwise to put your money in these vehicles because you will actually be loosing money to inflation. If you have more than a year, there are many bonds and some equities such as preferred stocks that have very low volatility, but much higher returns.

  7. Wishing you, your family and the entire family of your Home EC 101 crowd, the best for a Happy and Heathly holiday, regardless of which (or any) version you celebrate.

  8. I have a budget category for every dollar, including one labeled “miscellaneous” for any “left over” funds.

  9. Great article. Mid-range goals seem to often be forgotten when we budget, and they could be the ones that we are most likely to fall back on credit cards with if we are not careful and budget for them. You offered a great reminder.

  10. great post. i find saving for these mid-range goals are hard to do psychologically, as they’re fairly far off. For these, i typically just have a generic ‘savings’ account with a goal — and once i Reach it, I move the money out, and buy the thing I want/need.

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