Concurrent Vs. Sequential Goals
A key financial decision people struggle to make is whether to allocate savings for multiple financial goals concurrently or sequentially. Saving concurrently involves working towards two or more financial goals at the same time, while sequentially focusing on one goal at a time in a series of steps. Each method has its pros and cons, and the key is to identify which one works best for you to take positive action.
Pros and Cons of Concurrent and Sequential Methods
Focusing on one goal at a time through the sequential method may provide a sense of completion and make it simpler to set up and manage single-goal savings. However, it may take up to a decade to get around to long-term savings goals, resulting in lost interest.
Concurrent saving allows compounded interest to grow without delay and is often preferred for goals that come later in life. However, it can be more complex as income needs to be earmarked separately for each goal, typically in different accounts, and might take longer to complete any individual goal.
Findings from a Financial Goal-Setting Study
A study published in the Journal of Personal Finance explored the financial priorities of young adults, finding that many were focusing on goals sequentially and delaying homeownership and retirement savings. The top three goals reported by respondents were saving, buying something, and reducing debt.
Five Ways to Make Better Financial Decisions
- Rethink completing financial goals one at a time and consider concurrent goal-setting to maximize compound interest.
- Do more of what you’re already doing to improve your personal finances, such as increasing savings.
- Stop or reduce costly actions that hinder financial security.
- Save even modest amounts for retirement to secure a better future.
- Use online calculators to set financial goals and create plans for achieving them.
To determine the best way to save for financial goals, weigh the pros and cons of concurrent and sequential strategies, consider personal preferences, and establish a regular savings strategy catered to individual needs. Every small step counts!
