AAR53-Stop Ballparking It: A Real Plan for Saving Toward a Goal

0:00The fourth thing that I want to avoid here is just saving cash. The last thing I want to do is just take some cash, set it in a safe somewhere or a normal savings account or whatever. I want the money to be growing. And again, we'll be covering good places that I think you can put money for this kind of savings goal. But the last thing you want to do definitely is just save cash. That money isn't going to grow into anything. It's just going to degrade over time due to inflation.

0:35Good day, everyone, and welcome back to At Any Rate. My name is Evan Ray, and we are here to help you make sustainable financial changes without breaking a sweat. And I'm happy, and I hope, I just really, really hope that you're happy to say that today is actually going to be a solo episode. And as usual, solo episodes, it's going to be covering pretty personal stuff, covering my personal finances, my personal financial decisions, my mindset around things, and really just diving deep into that without boring the heck out of Andrew or another guest of going into myself and just sounding very selfish.

1:10So today is going to be covering my personal example of saving towards a goal. I have a goal coming up financially, and I'm just going to be discussing my mindset behind it, my planning for it, and how I've applied that in the past, how I'll apply it in the future. And this is definitely different than our usual saving discussions because we tend to discuss things around general long-term savings or massive savings like a home, some big life decision. Because frankly, that is in a lot of ways the most impactful. If you go from not saving for retirement to saving for retirement, that is a much, much bigger flip than saving for a new laptop in a way that you would have otherwise.

1:49A laptop is not the goal, so that's not a spoiler. But I just kind of want to cover that. So this can apply to any, I'd say, short to medium term goal. We'd probably be looking at goals less than two years, I think, is where this would be most applicable. But to not bury the lead anymore, the goal for me is going to be a motorcycle trip with my best friend. Long story short, there was a YouTube series where a couple of guys, if anybody happens to know or cares enough to look it up, it was Ludwig and Michael Reeves. and it was where they um the first episode they went over to China second second series they went over to Japan and they just went you know without any translators rented a couple motorcycles and obviously had gear and they like camera crew that would follow them periodically whatever and you know just went tip to tip is what it's called because they went from the southern tip of both countries to the northern tip of both countries and that was just really really inspiring for us.

2:45So I actually had a motorcycle a few years ago, if anybody cares again for, for a reference, it was, it was a Harley XG750, not a normal Harley. If you hear the word Harley, this is nothing like the normal Harleys. And I definitely don't want anything like the normal Harleys just for me personally, but that's what I had previously. Um, I got rid of it a couple of years back or actually probably a few years back by now. And so I'm going to need to get a motorcycle again to have some time ahead of time to get some practice again, get my sea legs basically. Again, if you care what models I'm looking at, I'm currently looking the most at the Triumph Speed or Scrambler 400.

3:25Also considering the Royal Enfield Interceptor 650. Obviously, if you don't give a crap about motorcycles, the exact models don't matter whatsoever. But also factored into this goal is definitely going to be gear. Gear safety is absolute number one. importance for me. I'm not out here to, you know, to make the risk higher than they need to be. So I'm trying to wear as good a gear as possible, and that is a significant cost. And so that will be included in the overall cost for my goal. What I'm not currently including in this goal is the trip itself. And the reason for that is we at this point, honestly, don't even know where we would go.

4:03We don't know whether we might just leave from home, you know, leave from where we live and drive to somewhere to just take a road trip from there, or if we would fly to somewhere and rent bikes, the cost could change pretty drastically. And so we're not trying to, I'm not trying to factor something like that in if it's going to be so uncertain. At this point, I'd be looking at about a 10 month timeline. Again, not for the trip, but for the motorcycle itself. I'd like to shorten that up if possible, but at this point it's a 10 month timeline. And then the trip itself probably wouldn't be for a year and a half or potentially two years, but a huge importance for me here that I'll dive into more later on is that I want to save without taking from my most powerful savings.

4:44You can kind of keep that idea in your mind. I don't want to take from my most powerful savings. That's what I want to avoid as much as possible when trying to hit this goal. So where can this apply? This general mindset again of me saving up for this motorcycle and the gear to go along with it. Anywhere you want to save up for a medium term purchase. So This is home renovations. This is new cars. This is, you know, rather large electronics. This could be furniture, stuff like that, or even better yet, a motorcycle. I think maybe we should just convince every single listener to get a motorcycle.

5:18I think the world would be a very interesting, but honestly, really good place. A lot less traffic, a lot less fuel consumption, but it could be a lot of fun. Anyways, so I've used this general plan and mindset in the past, but as with all things, We grow over time, and even though I have put a ton of thought and effort into my finances, it's still ever-evolving. It still always changes over time, and I think that this is the most structured version of going through this process for me that it's ever been, frankly, and will probably become even more structured in the future. I actually want to start off here next with what to avoid when saving up for a purchase.

5:59Often I think it's a really good thing to kind of lay out ahead of time what we don't want to do during these steps before we actually get into what exactly we do want to focus on. So first thing I want to avoid is just ballparking it and assuming I'll be okay. And I know that sounds really obvious. That sounds like, well, duh, you don't just want to ballpark it. But that's the easiest thing to do. And frankly, that's what the vast majority of people do with the vast majority of purchases. I would bet that the majority of people for every purchase potentially short of a house, and even then that's not necessarily always true, but short of a house, are pretty much always thinking, well, I'm pretty sure I have enough savings and I've probably got enough cash flow for that.

6:37I make good enough money that that seems reasonable and we're kind of just all going off of vibes or going off of what somebody, a coworker at work who makes a similar amount of money to you, what kind of life they live. We all just, we gauge it all off of that. And the last thing that we should do, of course, again, I know it sounds obvious, but we kind of have to drill it into ourselves that the idea of just ballparking any substantial, reasonably large purchase, especially anything you're going to have to save up for, you know, like in this case, I don't just have the spare cash set aside to say, oh yeah, I got that cash dedicated to nothing.

7:08I can go buy the motorcycle this second. That is not where my finances are at and that's not where I set them up to be. So I need to be planning and saving up for it. And if I try to ballpark that process, then I could step into some really, really bad waters. I also, second thing I want to avoid here is pulling from anywhere I didn't intend to pull from. I didn't plan to pull from, plan for a motorcycle purchase. So for example, we have a home emergency fund, personal emergency fund. I have separate savings for separate tax payments and that sort of stuff, blah, blah, blah. I don't want to be pulling the money from one of those places because sure, I might be able to get the motorcycle more quickly.

7:50but now I'm basically left myself in a lurch for that other sum of money that I had set aside where something happens you know say I pull it from the home fund and then suddenly I need three thousand dollars you know for the house now I don't have it anymore and and that and then I might have to go into debt or borrow from somebody else or blah blah blah there's too many that's too dangerous of a chain reaction to lead so that's something else I want to avoid third thing here is just having some sort of slush fund I know is what a lot of people call it and basically that's some sum of money of fund for you that you can just kind of put into whatever the heck you want.

8:25And my issue with this, while overall, I don't think it's the worst idea, it can help limit your savings, help you visualize, or sorry, limit your spending, help you visualize how much you have to spend on just discretionary purchases or whatever. But the issue with a big purchase like this for me is it's really easy to overspend because you might think, oh, well, I have this slush fund. It's got thousands of dollars in it. Of course, I can go buy some clothes, buy some shoes, whatever. and then all of a sudden the time comes to make the big purchase and now either you don't have enough left in it and now you're going to spend past what your initial limit was or that big purchase is going to put you in a tough spot financially or you'll have to delay it further because now you don't have what's left and it's just a lot harder to restrain yourself ahead of time and kind of account for that big purchase that's going to be happening at some point instead that we just keep those separate so you can still have your slush fund for other smaller discretionary spending, but then have a separate motorcycle fund.

9:18Because again, everybody listening right now is going to be starting a motorcycle fund. Have a separate motorcycle fund off to the side. And that can be a much, much easier way to visualize it, a much better way to stop from overspending and just know that you're going to be aiming in the right direction for your goal. The fourth thing that I want to avoid here is just saving cash. The last thing I want to do is just take some cash, set it in a safe somewhere or a normal savings account or whatever. I want the money to be growing. And again, we'll be covering good places that I think you can put money for this kind of savings goal.

9:48But the last thing you want to do definitely is just save cash. That money isn't going to grow into anything. It's just going to degrade over time due to inflation. And if inflation increases the cost of your motorcycle by the time you go to purchase it, now your cash is actually worth less than it was originally. And it's just harder for you to save up. And that is a legitimate waste of money. And the last thing here is just planning on a credit card to save you. If you're planning when you, you know, go to buy that motorcycle that whatever happens, I'll just get it on a credit card or I'll just get it on a loan or whatever without planning on it.

10:18Of course, if you plan on a loan, that is completely valid. But if you're just saying that a credit card or a loan is going to cover you regardless of where you end up, I don't think that's a good place to be. If you do the math on your budget and say, I can afford a loan of 120 bucks a month on this motorcycle, then okay, go ahead and prepare for a loan of 120 bucks. But if you just say, I'm probably not going to be able to save enough by the time I want to get the bike. And so I'll just, you know, take a loan out on whatever I can't afford. That is a bad, bad financial decision because for all I know, for all you know, that 120 bucks a month or whatever it ends up being can easily be the tipping point for you financially where you now struggle to get by, struggle to save, struggle to hit your other financial goals.

10:59So we want everything to be clear cut and prepared for where we're going to be and where we want to be. All right. So now we're going to move on to the actual step-by-step framework. So step one here is just set the goal. You need to actually determine the goal amount. Again, like we're talking about with trying to avoid just taking out a loan. We want to make sure we're prepared for exactly how much that motorcycle costs, that trip costs, whatever it's going to be, again, as accurately as we're able to. I tend to round up on all this sort of stuff and I know that to some degree that can definitely be a privileged thing to do to say oh you know I'll always just round up to the next you know hundred or thousand or whatever to be safe about it but I think this is this is a really important safety net because even just going a little bit over and having to pull from elsewhere it could also say put you in a situation where I was planning to make the purchase today but now I have to wait two days for it to transfer from another account over here so I can make the purchase.

11:51the best thing you can do is just round up, give yourself a little bit of padding so that you know you'll be able to afford it. Of course for me, when it comes to goals, I write this and everything else in a Google sheet or an Excel sheet somewhere. It pretty much always ends up in my finances spreadsheet. It could be on a separate sheet. It could be part of my budgeting. It could be just doing a little bit of math on there, whatever it is. But please feel free to obviously use whatever you want. I tend to find this a very useful tool because it avoids me having to really do any of the math myself.

12:23It's really adjustable and I can access it from anywhere. But if you want to use a legal pad or a piece of paper or whatever, just I emphasize that you write it down. As always, we've talked about this in the past with financial goals, but writing something down and visualizing it, visualizing progress, visualizing how far you still want to go, visualizing ratios in terms of a budget or something like that, I think is very, very helpful and impactful and can really shift your financial mindset versus just kind of thinking, okay, I've got about this much saved. It'll probably take me about this long and trying to memorize stuff I don't think is the right way to go.

12:56Or maybe I just have crappy memory. You can argue that too. The last thing about setting a goal here is if there are multiple options, list all of them. For me, there are definitely multiple motorcycle options. And so I want to list all of those options at different costs. Also, I'm going to be planning to be getting used and used obviously prices are going to fluctuate uh rather drastically at times which is another reason always just to round up i'm not trying to guess to the exact dollar amount because i'm not going to get it right to the exact dollar amount um in addition also looking at different gear i list those different gear options and this gives me a great you know breadth sort of like a range of of what the the total could end up being and a range of what the goal should be and from that I can set a what I think is the most accurate goal possible ahead of time and again trying to round up on that and give myself a little bit of margin second step here on the framework is to look at your budget and I know that you knew this was coming you knew this was going to be part of the process but it's incredibly important and having a budget is so important to us that we have an entire episode about it not to mention all the other episodes where we've covered it in some amount of detail, but we have an entire episode dedicated to it of AAR03.

14:05So you can search that on any of your podcast platforms. If you're looking to dive deeper into what exactly budget is, how to structure it, how we structure it, blah, blah, blah, just an entire episode about that topic. But this is incredibly important because you need to know everywhere that your money is going and how much is going to those different places. This is the only way you're going to be able to accurately plan and say, I have, you know, X amount of money going to this place. And so I can afford to bring that down by, you know, 20 % and put that 20 % towards the motorcycle fund. That is the only way you're going to accurately be able to do this.

14:39If we try to skip to the next steps here and, you know, start moving money around and making financial decisions. If we don't know, if we're not able to make educated financial decisions on where we're already at, then we're just going to be guessing at things and we might as well not be doing any of these steps. Realistically, we need to know where we're at and how much we're able to shift things, but still be able to get by and be certain about that. Ideally, we want all of these moves that we're going to be making in these future steps. And we want all of our other budgeting that we're looking at already on our spreadsheet to be automated and set up ahead of time.

15:13I know we talked about that a lot, but that is incredibly powerful to look at your budget and know, yep, I know that that's being followed because I've set it up ahead of time instead of looking at your budget and saying, did I move that account last month? I know I wanted to, but let me go check the history. And getting caught up in that is a tough place to be and a very time-intensive place to be. So I would say when you look at your budget and you make a change or set up your budget, just set that in stone in the account as an automation so that you know it's going to be occurring whether you think of it or not.

15:46so third step here is where to pull from on your budget so you've got your budget set up you're able to visualize you're able to look at it now we want to figure out where we can pull from so for me the best places to pull from are usually either discretionary spending or your least powerful savings which again i'll explain that in just a second i think that discretionary spending is a very mentally logical place to to try to pull your money from for something like this because you know it's it's something you're planning for in the future and at least in in my case for the motorcycle or if it's your case for a trip or some new furniture or something realistically it's it's a want it's not a need that you're saving up for and so for me it makes sense and is a lot easier to tell myself okay you can't you know buy all the things you might want this month because you're already choosing to want something eight months down the road and so you need to be saving towards that instead it can be definitely difficult to do something like this long term.

16:41I think that if you say indefinitely, I'm not going to be able to spend as much discretionarily because for years and years and years, I'm going to be saving up for this other big thing. I think that that could become difficult. I think that as humans with our own incomes, it's very difficult to tell ourselves, hey, you're doing great in life. Now you have less to spend on yourself. Of course, we want to avoid lifestyle creep and shooting up like crazy, but asking yourself to push that number down by any significant amount, I think is difficult. And for a lot of people, just honestly not sustainable.

17:15So it really depends on where you're currently at. If you're able to convince yourself to do that for a short period of time, then I think that's great. But if not, then that's okay. The other mindset here with discretionary spending is just to keep excess unspent discretionary spending. So again, if you do a good job of tracking how much you should be spending each month, maybe put that into like a slush fund, like we talked about before, and you know how much you have left or how much you didn't spend at the end of the month, well, congrats. You didn't spend as much on yourself as you planned to, and you can put that money towards the motorcycle fund instead.

17:46That's also a great way to go about it. As for the least powerful savings, basically what I don't want to do is pull from something like a Roth IRA, a 401k, a health savings account. I don't want to be pulling from somewhere that it's really twofold. Number one, these accounts have huge advantages of some kind that I just can't really get anywhere else. Things like Roth IRAs, the 401ks, they can grow tax-free and I can just essentially avoid a portion of those taxes by waiting until retirement to withdraw them. So unless I want to wait until retirement to get this motorcycle, they're not going to be an option to pull from.

18:24I don't want to pay the fees and taxes on them that would significantly reduce their effectiveness and power that I could have had from them. As for something like a health savings account, that's an account that is intended to be spent towards health related expenses. And if I decide to spend that on something else, again, I'm going to lose all those tax advantages. I'm going to pay fees. And that is not, I don't want a hundred dollars of mine to turn into$60 when it didn't have to. So I'd rather be pulling from elsewhere. So great options of where to actually pull from are things like potentially an emergency fund that is already at a good point.

18:58I want to say that very clearly. I'm not telling you to pull from an emergency fund that you, you know, you have decided set aside is what you need, um, in case of emergency, but instead say you you're used to contributing a hundred bucks a month to emergency fund. Um, and then you reach your goal. Well, now you could, you can have a hundred bucks a month to contribute to elsewhere because you've already done the good job to get to your emergency fund, get your emergency fund to a good point. And now you can use that monthly income elsewhere, contribute to elsewhere. And the reason I bring this up is this is a portion of where I'm Personally, pulling my savings to the motorcycle from is my emergency fund to hit a threshold that I'm comfortable with it hitting.

19:38And now that X amount of money that I was putting in it every month can be put elsewhere because I've already reached my goal. To be very clear here, if an emergency emergency were to occur and I needed to pull from that emergency fund right now, then I would take that back away from the motorcycle fund contributions and put it back to the emergency fund to build it back up to where I want it to be. another option here where to pull from is something like a taxable investing um not from the account itself again but for the ongoing contributions to that account taxable investing accounts while great to have and and a fantastic financial building tool are far from the most powerful financial building tool out there and so if you're already doing a great job of prioritizing those other tax advantaged or advantaged in some way accounts then it's okay to not put as much priority on an account that's just not going to give you as much power.

20:31And the truth is always that we only live once. We only live one life, at least as far as we know. And so the best we can do is make the best out of our current life. And so if you're already putting a lot away for long-term savings or retirement, then live a little in the meantime. And the last option here is something like a slush fund is an option. If we're kind of choosing the best of evils sort of here, then pulling for something like a slush fund is definitely not as bad as pulling for something like a Roth IRA. Another option here that's worth mentioning, if you're trying to find room in your budget and you're just not able to find it for the time being is to just work for extra money.

21:10I definitely know that's easier said than done. I'm not trying to say, oh, you know, just go, you know, go work somewhere and make some money and boom, now you can afford it. I'm not saying it's that easy, but there are definitely a lot of options depending on your personal, your lifestyle, your experiences, your skill set to find something to do on the side, just to earn a little bit of money to support this. It'll also be something to keep you busy, keep your skills sharp, and also help you achieve that goal more quickly. So as I mentioned, where I pulled from first place was decreasing my discretionary spending.

21:39I am somebody who does track all this very thoroughly, and I know that I already haven't usually been reaching my discretionary spending limit. And so I'm okay with decreasing that by as much, you know, until I reach the point where I'm usually spending. I'm not trying to decrease how much I actually spend. I'm just trying to decrease how much I have allocated to that goal because I know that it was a little bit more than I actually needed. I'm definitely going to keep an eye on this though. I don't want to accidentally start spending more and, you know, being used to that old, uh, old discretionary spending value in my budget or whatever and start overspending.

22:13So I need to keep an eye on this and kind of keep myself in check for it. Second thing here is like I mentioned, my emergency fund hit the goal where I'm okay with it being, and now I'm okay to allocate that money, that income elsewhere, knowing that it'll instantly come back and start filling back up the emergency fund if the time comes where I need to use part of that emergency fund. And then the last here is some side income. Any side income that I'm able to work for is going to be put into that motorcycle fund, assuming it's side income that hasn't been previously budgeted for. I have some side income that I prepare for, I budget for, and anything over and above that or in addition to that will be put into this fund.

22:53All right, here's step four out of five for this framework is where to keep it. We need to determine where to keep this money because like we mentioned before, the last thing we want to do is just keep this money as cash. So it's not growing. It's just devaluing due to inflation and that's just a waste of money. So my answer here is going to be pretty plain and simple and I think a lot of you can probably expect it is that a high yield savings account I think is the best way to save for a goal like this. Any goal that's earlier, sooner than one or two years out. Trying to invest that elsewhere, invest it in something like stocks is just not going to be reliable.

23:27Sure, there's a great chance that stocks shoot up in that period of time and suddenly you're able to afford it more quickly or easily or have leftover than you could have otherwise. But there's also a very good chance that in a short time period like that, stocks go down. And that would be okay for the stock market to do, but that would not be okay for your short-term goal. And now you either put it off or now you have to pull money from elsewhere. That becomes a very complicated financial situation. So ideally, we just want to put that money somewhere where not only do we know that it'll grow guaranteed, but at also a fairly predictable rate.

24:01So something like a high-hold savings account is great for this because there's a set value that it will grow by. And so you can even do the math ahead of time to see how quickly it'll grow and how much that will potentially speed up your savings towards your goal. Not to mention, it's super easy to set up. Again, it grows and it's very, very easy to visualize that progress, both past and honestly future, because they're able to plan on it pretty successfully. A game changer for me of how I have my high yield savings account set up, and this could also apply to different accounts if you use other ways to save for a time period like this, is trying to segment the savings.

24:35Each platform is going to name this differently or kind of phrase it differently. for SoFi, if you wanted to look it up to kind of get a reference, which is the account that I use, they use something called Vaults. And what this basically does is split up your savings into smaller pieces that are intended to have specific uses and have specific goals. It's not actually splitting up the account into multiple accounts. All it's really doing is just doing it for the front end, for the user to visualize a separation of funds. The funds can be transferred between the accounts instantly. Again, they're not actually different accounts that take time to move money between.

25:11But this is an absolute game changer for me being able to visualize separate goals without, you know, going and opening five different high savings accounts or some crap like that to be able to visualize different things I'm saving up for emergency funds or whatever like that. Instead, I can have one high savings account and have an emergency fund, a house fund, a motorcycle fund, and others all set up in a single savings account with different goals. Again, as always with different automations. So I have a certain amount of money moved from the savings account to these other segmented vaults inside the savings account on a set basis on every direct deposit or monthly or whatever I choose to set it up as.