Smart goals are:
Specific: Describe the goal.
Measurable: With money goals, this is the amount.
Attainable: Is it possible? Is the outcome in your control?
Relevant: Is it worthwhile? Are you willing and motivated to put in the work to achieve it?
Time-Bound: By when you will achieve it.
“Save more money” turns into “I'll save $3,000 toward my rainy-day fund this year by saving $250 per month.”
Go ahead and rewrite all of your goals as SMART goals here. Write them in order of priority, starting with priority #1.
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How Much Is Enough?
As you get specific with your goals, you might not be sure how much is enough. Here's how to figure out how much is enough for some common money goals.
How Much Do I Need in My Rainy-Day Fund?
The typical recommendation is to have three to six months of expenses saved for an emergency. The idea is that if you lose your job, you have some time to find a new one or if someone in your family gets sick, you can take time off to take care of them.
Think through a couple of emergency situations – fun, I know. How many months of living expenses would you like to have covered? Depending on your specific job and industry, it might take more or less time for you to find a new role if you lost your job. It's also important to take your health insurance coverage into account. If something happened, what is the maximum you'd have to pay out of pocket? If you aren't sure, don't fret. We talk about this in detail in Chapter 10.
Instead of using your typical spending to calculate your rainy-day fund, you might decide to only cover your necessities like bills and some food. Multiply the number of months by your estimated monthly spending. You might decide that at a minimum you'd like three months saved but ideally you'd like to have six months saved. You can break that into two separate goals.
How much do you want in your rainy-day fund?
| # of Months | × | Monthly Spend | = | Rainy-Day Fund |
|---|---|---|---|---|
| Example: 3 months | × | $3,000 | = | $9,000 |
| × | = |
HOW DO I USE MY RAINY-DAY FUND?
We talk a lot about building up our rainy-day funds, but we don't talk enough about actually using them when we need them. Once you've built the habit of saving every paycheck, it can feel painful and even unnatural to use the money set aside. People who've retired report a similar feeling when depleting rather than building their retirement money. But that's what it's there for!
To make this easier on ourselves, we should be very clear from the start about when we'll use the money in our rainy-day fund (probably the scenarios that you walked through in the previous exercise). What constitutes an emergency?
If a situation arises where it makes sense to use your rainy-day fund, make the conscious choice to use it. Transfer a month's worth of expenses to your checking account instead of transferring money over every time you need it (like a slow painful drip). This feels a lot more powerful and less agonizing. Once your situation changes, you can work to build it back up.
How Much Do I Need in My Walkaway Fund? Wait … What's a Walkaway Fund?
Dasha Kennedy urges all people, especially women, going into a relationship to have a walkaway fund saved in a bank account that only they have access to. For her, that means. “If I needed to pick up tomorrow and walk away, I have what I need for housing, basic necessities, and day-to-day expenses. That's a fund I will always keep.”
Dasha recommends having six months of expenses set aside for anything you'd spend if you were to walk away. And it makes sense if you think about how long it can take for things to get sorted out in a divorce, including assets to be distributed or alimony to be paid. You don't want to be waiting and putting things on credit cards or, worse, staying in a situation that's unhealthy or even harmful because of money. 99% of cases involving domestic violence include some form of financial abuse.1 The walkaway fund could be your biggest form of financial activism yet.
Note: This can overlap with your rainy-day fund, as long as only you have access to it.
How much money would you like in your walkaway fund?
| # of Months | × | Monthly Spend | = | Walkaway Fund |
|---|---|---|---|---|
| Example: 6 months | × | $3,000 | = | $18,000 |
| × | = |
How Much Do I Need to Buy a Home?
When we're saving up to buy a home we often focus mostly (if not only) on the down payment, which is typically 20% of the cost of the home. This is usually the largest cost, but if it's the only thing we're prepared to pay for, things are going to get financially stressful. We cover this in detail in Chapter 9 – get excited.
How Much Money Do I Need to Retire?
As you can imagine, when it comes to retirement, there are a lot of variables that we won't know while planning. We talk a lot more about this in Chapter 7, including some important calculations, but for now, Lauren recommends using 15% of your income as a retirement savings target. So if you are earning $50,000, you'll want to be saving $7,500 per year toward retirement.
How Much Do I Need to Move Out on My Own?
In order to rent a place, you'll often be required to pay the first and last month's rent, as well as a security deposit (usually the size of one rent payment) – so that's three months’ rent. Depending on how you find the apartment, there may or may not be a fee you pay the broker. Don't forget to incorporate the cost of the move itself and any furniture you plan to buy. Make sure you add in the changes to your new utilities to your monthly spending as well.
With any of these goals, you'll want to plan to have the money (or at least enough of the money) available