Have you ever heard of the snowball method for paying off debt? I believe it was made popular by Dave Ramsey (who I don’t follow), but I’m sure many people started using this method many years ago. The idea is simple. You “snowball” all of the money you have available to put towards debt and apply it to the smallest loan amount first. Once that loan is paid off, you snowball your debt payoff money into paying off the next loan, always starting with the smallest amount first.
The snowball method works well, because it allows you to pay off an entire loan (albeit the smallest one) more quickly. This is a good motivator to keep that momentum going for the next loan.
The downfall to this strategy is that you usually end up paying more in interest.
Now, how about if we applied the snowball method to saving money? The benefits would still be there, and there is no interest to worry about. It would look like this:
Choose one savings goal.
It can be anything, big or small – summer vacation, new computer, or a home renovation.
Feed your savings account.
Put all of the money you have available for saving into ONE account, specifically for this ONE savings goal.
Rinse and repeat.
Repeat this process for your next goal. I find that tackling one goal at a time works much better than splitting up my money across five different savings goals. One, it’s a simpler method and makes keeping track of progress easier. Two, you’ll reach any given goal that much faster.
I also want to point out that I keep my retirement savings completely separate from my short-term savings goals. Retirement accounts continue to get a percentage of our income and the “Other Savings” category is for the vacations, renovations, etc.