Monday, January 5, 2009

Set Financial Goals

Tip #48 - Set Financial Goals - Now that we have a new year ahead of us, it is time to set up financial goals. To go hand and hand with writing up a budget, write down a list of what you want to accomplish in the upcoming year. These goals can might include saving $100 per month toward retirement. Or your list might have on it to pay off your last credit card. And it might list goals such as keeping your grocery budget down to $400 per month or to put away $25 per month for your child's education. Whatever your goals are, write them down.

Some people in the financial world would probably advise keeping your goals to be purely financial. But I like to put on there how you will accomplish these goals. For example, if your goal is to keep your grocery budget down to $400 per month, you might have listed beside it that says you will be cooking dinner from scratch 3 times per week instread of buying ready-made dinners. If your goal is to have a clothing budget of $50 per month, you might list corresponding goals of shopping for clothes at thrift stores or only buying your clothes at discount places.

After you write out your list of what you want to accomplish this year, then you can write up your budget to meet these goals. The budget will organize your goals into clear, financial terms. If you are going to cut out your daily coffee, then you don't need a line item in your budget for your coffee fix. If you want to pay off your last credit card bill, then you need to figure out how much you need to put in the budget each month to pay it off. If you can't get your budget and your goals to line up, then you will need to adjust one of them. If your budget shows that you only can put $50 per month toward retirement versus the $100 you had hoped, then you need to either cut something else out of your budget or adjust your goals for this year to save only $50 per month toward retirement.

After you finish this year's budget, then you can start another sheet of paper with long-term financial goals - perhaps goals over the next 3 to 5 years. So while you can only save $50 this year toward retirement, your long-term goal might be to save $100 per month. Then write it down in your 3-5 year plan. Remember, once your debts are paid off in the short-term (hopefully), then you will have more money available to you to start saving in the long-term. It's always good to think ahead to what expenses you will have in the future and what you want to accomplish.

In Real Life (IRL) - We haven't done our yearly budget yet, mostly because my husband hasn't gotten his review and raise yet for this year. Usually he gets it in December, but there has been some management changes in his place of employment and they haven't come out yet - if they are coming out at all. Once we find out for sure if and what his raise is, we will write out our yearly budget. I don't actually expect it to be all that different from last year's except for some minor tweaking. In the meantime, we have made up a list of our financial goals for this year. Our two main goals haven't changed for the last few years:
--Put the maximum into our retirement IRAs ($5,000 per adult)
--Put the maximum into our children's education ESAs ($2,000 each)
I've also added:
--Cutting our grocery budget down to $400 per month from $500 - hope to continue cooking more from scratch. I'd like to start baking my own bread. I want to go full-steam ahead with buying in bulk when I see a great price on things we use.
--I want to keep our children's summer activity costs at $1,000 total.

In the long term-
--I might look into going back to work (15 hours per week) in September. In which case will have extra income for 4 months. This extra income will go towards a savings fund for extra expenses we expect over the next few years such as braces and religious education.

--Next year in the fall, I expect to work even longer hours (24 hours per week) when my youngest is old enough to be in school for longer days.

--Pay off mortgage on condo by end of 2010. (We bought a condo with my husband's mother 5 years ago so she could have somewhere to spend the cold winters. She didn't have the money to buy it herself. Also, it's something we can use down the road. We pay off extra each month and our goal is to have it paid off completely by end of 2010.)

What are your financial goals?

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