Setting up goals for savings

You can set up financial goals by creating additional scenarios for an account managed in PocketSmith. This allows you to plan the achievement of goals such as savings (both short and long term), and debt repayment.

  • If you'd like to understand how scenarios work, you can find out in the article at: What is a scenario?

Managing goals in a personal finance application is all well and good, but we'll preface this article by suggesting that the simplest and best way to save is to set up a savings account, and set up a regular automatic payment to it. Then, link the savings account to PocketSmith and track it.

This ensures that:

  1. The process of saving happens automatically when the money is transferred out to your savings account
  2. You're less likely to accidentally spend the money allocated to savings
  3. The remaining balance of your 'spending' account is a truer record of what you have available 

Research on behavioural finance shows that you'll have a greater chance of success if you put your savings on autopilot. If you have a few minutes, check out this TED Talk by Shlomo Benartzi: Saving for tomorrow, tomorrow.

Many users manage their savings accounts in PocketSmith. By scheduling the regular savings transfers, they use the cash projection feature to know exactly how much they'll have at any point in the future (up to 30 years ahead).

PocketSmith also calculates interest for you, so you can easily see the benefits of compounding interest on your savings. 

With that thought in mind, let's now look at how savings goals can be 'virtually' managed in PocketSmith.

How goals are managed in PocketSmith: showing you 'safe to spend'

PocketSmith already helps you create a cash projection for each of your accounts, which is a broad form of goal-setting. You may for example have already adjusted your budgets to achieve a target bank balance amount in mind for a set date in the future. As such, simply sticking to your budgets will help you get there.

If however you want to save for specific things as you go, here's the broad idea.

  • You're 'setting aside' a sum of money for your goal, as an alternative to transferring money out of your account.

  • To do this, you'll use a scenario to virtually transfer sums out of your account, and subtract from its current balance to determine how much money is set aside.

  • For example, you may have $2,000 in your Checking account, of which $300 is set aside for a new iPad.

  • In this case, your account and primary scenario balance is $2,000, and the 'iPad' scenario balance is -$300. 

  • The savings scenario balances are negative because they exist to subtract from your account balance. Scenario balances continue to further into negative over time to reflect the increasing amount of money you're setting aside.

  • Therefore when the scenario is active in the calendar, your daily account balances in the calendar are reduced to a 'safe to spend' amount. In the example above, your account would display $1,700 as 'safe to spend', because $300 has been set aside. As such, you use the Checking account with that balance in mind.

Instructions for creating a goal

Following on from the iPad example above, let's assume you want to create a goal of saving for a $500 iPad by putting $50 aside each week.

  1. Head to the Organize Accounts & Scenarios page
  2. Find the account you want to add a scenario to, and click on 'Manage > Add Scenario'
  3. Enter a scenario name, e.g. "New iPad"
  4. Enter $0 as the starting balance if you're starting with nothing. If you already have money saved aside for your goal - e.g. $50, then enter -$50 (negative fifty dollars) as the starting balance. You don't need to change the interest amount and date.
  5. Click 'Save', then go to the calendar.
  6. Click on the account you're working with on the side panel. You'll see the scenario in 3 dot menu for the account, it appears beneath the account's primary scenario, and a starting balance for "New iPad" at today's date.
  7. Click on a future day in the calendar to open the New budget window. This is when you expect to set aside the $50 each week.
  8. Enter a category for the budget, e.g. "iPad savings". Set it as an Expense, with the amount as $50. Set the repeating period to 'Weekly', and set the scenario to 'New iPad'. Click 'Save budget'.
  9. And you're done! Now you have a scenario that reminds you of your goal, as well as how much you're setting aside.
  10. You can adjust value of the "iPad savings" event as you go to put aside a more reasonable amount. Keep an eye on the combined 'safe to spend' values in the future to see what suits.

When the 'New iPad' is active (selected) in the sidebar, its budget and balances adjust your account balances to reflect a 'safe to spend' value. To see the account's balances and forecast without the goal, simply un-check the scenario in the sidebar.

To see your progress on saving for the 'New iPad', make it the only active scenario. You'll see the balances gradually grow to -$500 over time, at which point you should have put aside enough for the goal.

If however the combined 'safe to spend' balance at the goal date is lower than expected, then you know that you haven't reached your goal and you shouldn't spend on that iPad quite yet.

We will be creating interfaces in the future to streamline scenario and goal creation by filling in these steps for you, but in the meantime, this is the 'manual' process for setting up a goal.

Account Balance

Setting up a secondary scenario does not affect the balance on the left sidebar on the calendar. This will be the balance of the account and will not take into consideration the amounts transferred to your secondary scenario. If you want this balance to show the balance with the amounts transferred removed, you can change the balance option of the account to a scenario-only balance. You can find out more about the scenario-only balance at the article:  Why would I use the 'Scenario balance' option?

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