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- My partner and I are both avid savers, but we wanted to create a system to help us stick to our goals — and achieve them.
- We decided to create a savings “ladder” strategy — we set a goal amount (or rung on the ladder) and when we reach that amount, we get a reward.
- We start by setting our rewards — a shopping trip or weekend vacation, for example — and use two high-yield savings accounts to keep our savings separate from our reward money.
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Before we moved in together, my partner and I had our first serious conversation about money. We knew that we shared a propensity for saving (and a decent amount of student debt), but we wanted to create a plan of attack from the beginning that would allow us to pay off debt, increase our savings, and enjoy a certain quality of life at the same time.
While we were both comfortable making certain sacrifices for the sake of retirement (yes, we’ve intentionally gone years without Netflix), we didn’t want to end up hitting retirement age, miserable, having spent our younger years saving so much that we couldn’t enjoy life.
Our savings ladder is a fairly simple concept. Instead of simply saving as much as possible, we set a goal amount (or rung) that we want to achieve; when we get there, we get a reward.
Every rung helps the number in our savings grow higher and higher, and the action of earning a reward — something tangible (and sometimes frivolous) — keeps us engaged and excited about saving money even when our daily lifestyle might seem hyper frugal.
First, start by setting a reward
My partner and I start with something small enough to be attainable quickly(ish), but large enough to be more than we could find ourselves accidentally spending on Amazon.
Since neither of us spends money on clothes or shoes — my partner has worn the same three pairs of shoes for the last three years, and I’m still wearing a pair of ripped Forever 21 jeans from four years back — one of our early rewards was a $400 shopping trip, half for each of us.
It might not seem like much, but our brains thrive off rewards. Research suggests that using rewards can help increase the probability of a behavior (in this case, saving money), especially when there’s a direct correlation between the event (giving yourself a reward) and that behavior.
While some people view the rising number in their bank account as a reward in and of itself, not all of us are that lucky. That’s why small, regular, and compounding rewards can be so valuable to increasing your savings over the long-term.
Next, decide how much you want to save to ‘earn’ your reward
Instead of saving up $400 to spend $400, we double (or triple) the amount that we need to save in order to “earn” the opportunity to receive our reward.
In this case, we set the savings goal to be $1,200 so that — even after we spent the $400 on our reward — we still had a decent amount in our savings to help us feel good about what we’ve accomplished.
Use a high-yield savings account to maximize savings and keep it separate from your checking account
To take this a step further, my partner and I also maximize our savings by using two high-yield savings accounts to manage (and maximize) the entire process. Our HYSAs help us keep everything clear as we manage our saving — and our spending.
Once we set the initial amount we want to save, we record the starting “target” amount in our primary savings account. If we have $500 in savings before we begin, that means we’re aiming for $1,700 in savings to reach our goal.
For shorter-term goals, the interest accrued on our savings might not seem like much, but it definitely adds up over time — and it ensures we’re earning dollars (not pennies) on our hard-earned money.
Set your next goal before you achieve your first one so you don’t lose momentum
The moment we hit our goal savings amount, we immediately transfer the amount of the reward over to our second HYSA — one that is connected to our checking accounts. This allows us to be firm about not using our primary savings (making it relatively “untouchable”) while also giving us the ability to move quickly from one goal — or rung of our savings ladder — to the next.
It might seem like an unnecessary extra step, but we’ve discovered that separating the two savings accounts has prevented us from accidentally over-spending on rewards. Plus, if you’ve earned a reward but haven’t been able to spend it yet (like $500 on a weekend vacation), you don’t have to worry about remembering not to include it in your new savings goal.
While it can sound complicated, the process has served us well. We purchased a new house in November 2019 — leaving us with $6,000 in savings after a hefty down payment — and we’ve since passed the $34,000 savings mark.
In the meantime, our rewards have been motivating us to keep increasing our earning potential through freelancing and smart budgeting practices without sacrificing on overall quality of life. Sure, we might say no to expensive nights out, regular shopping trips, and the convenience of having two cars, but the shopping spree, future vacation, and $2,000 worth of new tech gadgets has been worth it.