Couple's hands holding savings jar | iStock.com/annebaek

iStock.com/annebaek

The economy is showing signs of life again, but that doesn’t necessarily mean there’s a surplus of money to put away for long-term goals such as a new car, college or retirement.

Belt-tightening is always a good way to save money, but you can only take it so far because when you’re raising a family, reasons to spend pop up like weeds. And they come in many varieties, such as car repairs, unreimbursed medical bills and unexpected household repairs, to name a few.

U.S. households saved 5.5% in November 2015 — a lot better than 0.4% in 2005, but way off highs of more than 10% during the mid-1970s.

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But the national savings rate isn’t as important as your personal savings rate. Sen. Elizabeth Warren, D-Mass., and daughter Amelia Warren Tyagi, co-authors of “All Your Worth: The Ultimate Lifetime Money Plan,” advocate this financial formula for success: Spend 50% of your paycheck on the “must-haves,” 30% on “wants” and use the remaining 20% to service debt and save money.

“We’ve grown so accustomed to spending money that it really is time to take a second look at our budgets and start pulling in the reins a little bit,” says CFP professional Kelly Campbell, CEO at Campbell Wealth Management in Alexandria, Virginia.

“What we’ll find out is that a lot of people are able to save a lot more money than they ever thought.”

So how do you squeeze more money out of an already squeezed family budget? It’s a matter of determination and discipline.

How to save for different goals

  • Set up an emergency fund.
  • Save for short-term goals.
  • Establish midterm goals.
  • Don’t overlook long-term goals.

1. Set up an emergency fund

Most financial experts recommend that you set aside an emergency fund of 3 to 6 months’ worth of living expenses before you start saving for other goals.

While this money technically does not go toward any of your short-, medium- or long-term savings goals, it does act as a deterrent to tapping such important accounts as a 401(k) if you lose your job.

The money also helps prevent your family from getting into deep credit card debt.

If both spouses are working and jobs are secure, you could adjust how much you save for emergencies. But you’ll need to carefully assess your situation.

The amount you need to save “depends on how long you expect to be looking for work,” says CFP professional Judith Ward, senior financial planner with T. Rowe Price in Owings Mills, Maryland.

“Households with just 1 worker or folks who earn commission may want a little more just because of that uncertainty.”

Ward also suggests tracking family expenses by adopting a household budget for the best chance of success in meeting your savings goals.

2. Save for short-term goals

Once you have an emergency fund set up, consider setting up your priorities into 3 time frames or “savings buckets” — for short-, medium- and long-term goals.

Say you want to go on a family vacation in 2 years or buy a car next year. Both would be considered short-term goals, so investments kept in these buckets should be liquid, meaning you should have no trouble withdrawing the money when you need it.

At the same time, you may want to earn a little interest on your money.

Start by determining how much money you’ll need and divide by the amount of time you have until you need the money.

For example, if a car costs $5,000 and you want to purchase it 1 year from now using cash, you’ll need to save about $417 per month, not including taxes and registration fees.

Next, you’ll have to figure out how you’re going to fund this short-term savings bucket.

Keep in mind that with short-term goals, you don’t have the time to ride out market corrections. You don’t want to lose money, if at all possible.

Campbell says your best bet is to play it safe.

“I think the short-term investor — the 1-year, 2-year, 3-year investor — has to be thinking the very short-term monies,” he says. “Savings accounts, CDs, money markets are going to be safe investments.”

Suppose you decide to keep your $5,000 in a high-yield savings account that yields 1% and compounds daily. You would end up with about $5,050 at the end of the year.

That would give you an extra $50 that you could apply toward registration fees and taxes, or you could reinvest the money and start another short-term bucket.

A couple of things to note about CDs: Your money will be tied up for a period of time and if you withdraw your money early, you’ll likely incur a penalty that will eat into your interest earnings.

3. Establish midterm goals

It’s relatively easy to save money for things like vacations and even used cars, but as price tags rise and time horizons push further into the future, it becomes harder to keep financial goals in perspective.

For example, if your dream is to save for a down payment on a home, your child’s college education or your daughter’s wedding, you’ll need to go beyond belt-tightening and set up midterm savings buckets.

The concept is the same as with short-term goals except that you’ll need the discipline to stick with it longer and you may need to invest those buckets differently.

If you’re saving for your child’s college education, consider using a 529 savings plan as the vehicle of choice. These savings plans work much like a 401(k) or IRA where your contributions are invested in mutual funds and other investments.

“There are fees and costs associated with each plan, but I think, hands down, a 529 is the best account to use for saving for college,” says Ward.

Weddings are another fairly large midterm savings goal. If you’re the lucky one who will pay for it, expect the possibility of shelling out a lot of dough.

The average cost of a wedding in 2014 was about $31,213, according to The Knot, an online wedding resource. Of course, a more frugal wedding can be a joyful event as well, but it’s wise to plan for it nevertheless.

Money market funds, money market accounts, CDs and savings accounts are all good vehicles in which to park cash for a wedding.

If you’re going to fund this savings bucket with a CD, it’s best to time the maturity date as close to the wedding date as possible. This will prevent you from getting hit with early withdrawal penalties.

With midterm savings buckets, you still want to avoid exposure to too much risk. The goal is still to preserve or increase capital.

“I don’t think you want to put that (midterm bucket money) in stock,” says Henry K. “Bud” Hebeler, a financial planning expert and former president of Boeing Aerospace Co.

“If you choose stocks, that should be a very small part of it because that’s really a gamble. You’re pitting yourself against a whole bunch of professionals and most people don’t do very well at that.”

4. Don’t overlook long-term goals

A retirement account is perhaps the one savings bucket where the time horizon is long enough that you can usually ride out market gyrations.

That all depends, of course, on how long you’ve been investing, how close to retirement you are and what sort of lifestyle you expect in retirement.

Most experts say the only way long-term investors can achieve a comfortable retirement is to invest a certain percentage of their long-term savings bucket in equities.

“For retirement, you still need to believe in the stock market because you’re not going to make enough to outpace inflation otherwise,” says Campbell.

“We’ve gone through some very tough times in the market before, but the market will recover as it has after every other downturn we’ve ever had.”

An easy way to fund your retirement account is by participating in your employer’s retirement plan, which is typically a 401(k), 403(b) or 457 plan, depending on if you work for a private employer, a nonprofit or the government, respectively. (If your employer doesn’t offer a plan, then look into investing in an IRA.)

You’ll not only be saving for your retirement, but generally your taxable income will be reduced by the amount you save.

Hebeler says families should try to save at least 10% of their gross income for retirement, if possible, and adults who are single should save even more.

When you’re young, you can allocate a larger percentage of your bucket toward equities of various sizes and types — large, small, domestic and foreign stocks. But as retirement age approaches, you’ll need to do some tweaking and reduce the percentage of equities in your retirement fund to reduce risk.

“You can tweak them by adding a bond fund or other funds,” Hebeler says.

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