Thanks for the response, Sandi. I'd like to hear your take on the "where does the money for fun come from" question as well - sure, I can max out my 401k and start saving for a house downpayment, but if that would leave me with no money to save for my little vacation idea, am I really achieving appropriate savings goals?
OK, that is useful. Without some numbers, it's easy to get lost in the ether. For the record, I think you should be saving a MINIMUM of 10% for retirement. As mentioned, the time value of those savings can never be regained. So *I'd* have $10K for your emergency fund, 10% of gross pay into retirement, and the remaining 8% divvied up for house/car/vacation goals.
Also, I'd like to clarify something:
3) Downpayment for a house, other "to be spent" goals...
I don't consider saving for a house or a car to be the same as putting aside money "to be spent later." A house and a car are necessities (in my mind), and the house is also an investment, albeit a long-term one. I consider those to be appropriate goals for my "savings" bucket. My confusion is whether putting aside money so I can spend it all on a vacation is truely "saving."
Hope to hear more from you!
Ah, but a lot of those expenses are predictable, and can be planned. I DO consider "vacation funds" to be savings, until they're spent. Because if the car blows up, I may have to delay my vacation.
One way I've kept it separate in my mind is to use an old-fashioned accounting ledger book to "track" my savings account. Whenever I make either a deposit OR a withdrawal, I account for it across my multitude of "savings goals." Believe me, that really brings home the power of "choice" - in an immediate way.
I have savings goals of vacation fund, house repairs, gifts for family over the course of the year, car repairs, and vet bills. I look at past spending patterns, and assign a dollar value to each as a goal:
Vacation Fund: $2000 annually ($167 per month)
House Repairs: $5000 ($417 per month)
Gifts: $2000 ($167 per month)
Car repairs and maintenance: $1500 ($125 per month)
Vet bills: $1000 ($83 per month)
Total for savings: $959 per month
I "deposit" each monthly allocation to each goal in the ledger. And if I decide to withdraw from the fund, I have to see WHICH GOALS I'm willing to delay to get use the money NOW. It helps train me in making conscious choices about spending. If I just had a random pile of cash in an account, with no reminder of the costs I know to be coming down the line...it's easy to feel flush, and fritter it away.
I understand that house funds may seem like a "separate" account and goal, and you can certainly set aside a special savings account for it. For me, it's easier to just have one big account, as LONG AS I know which goal has the allocated funds.
Hope that helps...