Spending on a Goal

I reached one of my short-term savings goals back in December, and the time has come to spend that money! Though I am doing a no-buy year, my short-term personal finance goals still need to be funded for what I know I will need to purchase this year: travel and accommodations, moving and continuing to invest.

My goals are the reason I want to stick to my no-buy plan as much as possible. However variable they might be, compartmentalizing the amount I have to save in order to reach the goals has made the process easier, and it gives me less room to make excuses for not saving enough.

The Saving

This is the first time I have done a more intricate budget for a goal using the AAII PRISM Wealth-Building Process. Created by AAII Journal editor Charles Rotblut, PRISM is a five-step method for aligning my investing decisions with my goals. Whenever I need to be reminded of what I’m saving for, I return to my Prioritizing Your Goals worksheet.

I used my SmartyPig high-yield savings account to save the $2,000 I allotted for seeing my favorite band the Kills in New York. The idea is to accrue interest on my savings over time instead of moving $2,000 from my emergency savings into this goal all at once. I transferred three installments of $500 over two months into my SmartyPig account, and by the time I had enough saved to reach $2,000, I had earned about $15 in interest. At this point, I didn’t need to transfer as much money in my final installment to finish the goal. While I spend on this goal, the amount I haven’t spent continues to earn interest.

The Spending

Once I reached my goal, I started gathering up how much I had spent on concert tickets, transportation and hotels. When a group of these charges came due on my credit card, I moved money from the SmartyPig savings goal back to my emergency savings account to pay it off. I have my credit card connected to my checking and regular savings account, but I don’t want to connect any other accounts to muddy the waters. Logistically, even connecting my emergency savings account is one too many, but I have it as a backup in case of—you guessed it—emergencies!

After spreadsheeting it, I determined how much I had spent planning the trip and how much I had left over for food and anything else I feel inclined to buy while in New York. I can keep this number in my head whenever I spend $14 on a sad sandwich at the airport, or $20 on an appetizer at dinner. Even with New York prices, I don’t think I will spend the full amount that’s left over, which means there will be some money ready to go for my next short-term savings goal: moving!

The Psychological Tax

While having money saved specifically for this goal and spending it was the plan all along, there’s the psychological effect of spending on a goal to consider. Technically, I am lowering my net worth by spending money on this goal. Put into perspective, the entire amount saved is roughly 6% of my net worth. Before sitting down to write this (just kidding, I’m 100% still in bed right now), I decided it would be a good idea to beef up my savings outside of this goal. I calculated how much I could save and transferred some of it to my SmartyPig account, which is separate from the goal I have set up, and some of it to my LendingClub account for my intermediate-term goal related to property. This way, I’m continuing to save as usual so I can build more of a cushion while I spend down part of my savings.

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