If Money Is Tight, You Should Focus Only on One Savings Goal

You may not have the luxury of spreading yourself thin

One goal pursued obsessively is better than five goals with weak commitment.

Especially if money is tight right now.

Read to the end of this article to learn:

• How people struggling to make ends meet can save money by focusing on a single savings goal.
• A framing technique that higher-income people can use to achieve multiple savings goals at the same time.

When it comes to savings goals, “the fewer, the better”

When you read personal finance articles, you get bombarded with advice on the importance of building a savings plan for all your financial priorities, from retirement planning to a 30-day emergency fund.

But what if you have $400 left each month after paying your basic living expenses?

Is it realistic you will avoid all discretionary spending and split that $400 up to achieve five different savings goals?

OR

Would you be better off focusing your limited resources on one savings goal?

When I frame the question in that way, it seems intuitive that focusing on a single savings goal is the better option. That is precisely what a 2011 research paper found; when money is tight, focusing on a single savings goal increases the odds of following through on your plans to save money.

The researchers ran an experiment where employees were encouraged by their employer to think about pursuing multiple savings goals like retirement, house repairs, and saving for a child’s education vs. a single goal.

The employees who were encouraged to save for a single goal saved significantly more money over the next six months.

In a follow-up study, participants were given a hypothetical situation where they needed to spend $3,800 per month on basic living expenses like food and shelter. They were then split into two groups;

1. The first group with monthly take-home pay of $4,200.
2. The second group with monthly take-home pay of $5,000.

Each group was randomly assigned to save a total of $300 per month, either for a single goal or multiple goals.

For the lower-income group, when assigned to save for a single savings goal, they were much more likely to save the $300.

It’s not a matter of having the money or not; in either case, they have $400 of disposable income and are being asked to save $300.

Living on a tight budget is stressful. Being reminded of all the different goals competing for your $400 is overwhelming and keeps you constantly thinking about saving but not actually following through.

But, a single savings goal like building an emergency fund feels obtainable.

As the researchers put it, focusing on one goal moves from a “deliberative” mindset, where you’re stuck in thinking about it, to an implementation mindset, where you stop thinking and start saving.

Having financial focus simplifies, helps you prioritize, and, most importantly, helps you take action when money is tight.

How to achieve multiple goals as your income increases

As your disposable income increases, you are in a better position to pursue multiple savings goals at once.

But the key to success might be to trick your brain into thinking that you don’t have multiple savings goals but different components of a single savings goal: increase your financial well-being.

The researchers in the paper I referenced above conducted a follow-up study that found that how we frame multiple financial goals greatly impacts our follow-through.

Participants were all reminded of the importance of achieving three specific savings goals:

1. Saving for children’s education.
2. Retirement savings.
3. Paying for future house repairs.

Then, participants were divided into three groups which each received a different framing on how to achieve these goals;

1. Group one received a simple reminder of the importance of all three goals.
2. Group two, where these goals were framed as competing with each other. Participants in this group were told, “One of the challenges consumers face is that different savings goals ‘compete’ with one another. For example, every dollar you save for retirement is a dollar you can’t save for your children’s education or future housing.”
3. Group three, where these goals were framed as integrated parts of a single goal. Participants in group three were told, “Although it can seem like different savings goals ‘compete’ with one another, the fact is that they all serve toward your overall goal of achieving future financial well-being.”

If you’ve been paying attention, you can probably guess that group three saved significantly more money than groups one and two. In fact, their savings were almost identical to the group in the previous study, who were told to focus only on a single goal.

It all has to do with how the decision to save was framed. When people view saving for retirement and house repairs as part of one larger goal of increasing financial well-being, they can more easily get out of their own heads and put their savings plans into action.

Two takeaways

1. If money is tight, find the most important savings goal you can — like building a cash emergency fund — and focus on that goal with great intensity.
2. As your income increases and you have more money left after paying your basic living expenses, reframe the idea of pursuing multiple savings goals. Don’t think about these goals as “competing” with each other but as smaller components of the larger goal of your financial success.

No matter how many financial goals you have, thinking of them as all working towards one purpose can move you from overthinking to taking action.

A version of this story was originally published on the Making of a Millionaire Substack, the home of my writing. As a thanks for reading my work, existing readers can get 75% off their first year’s subscription here.

This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any significant financial decisions.