How do you work towards financial goals of saving, paying off debt, and investing while still having money for things like cars, vacations, and updates to the house?
We have found that saving in percentages has a powerful impact on our short-term and long-term financial goals.
A lot of people already think this way for investing in retirement. If you follow the Dave Ramsey plan, then you invest 15% of your gross income in retirement.
Some Christians tithe 10% of their income to the Church and if not 10% then they pick a percentage do donate each month.
I have found that the percentage approach works well for all savings goals.
Right now we are in baby step 6 (pay off the mortgage), so we pay the regular mortgage payment plus 30% of the savings we have left over each month.
Since our kids are in private school and we want to save as much as possible for them to go to college, we also set aside 20% of our savings each month for educational expenses (on top of what we already invest in their 529s).
That leaves half of our savings each month to set aside for bigger purchases like vacations and updates to our cars and house.
I can’t stress how powerful the percentage approach is to achieving financial goals. I noticed this in my business, too, where I set aside 5% for charities. That “charities account” grows substantially over time and leads to a lot of money to be able to give away.