Setting and achieving family financial goals

When I finally paid off my consumer debt last fall, I set a new goal: build an emergency fund to cover several months of my expenses. Never before had I managed to accumulate more than $1000 in savings. In fact, I'd spent most of my life living paycheck-to-paycheck, constantly flirting with overdraft fees.

For the past ten months, I've made saving my priority. Instead of using my positive cash flow to buy toys, I funneled that money into a high-yield savings account. My dedication has paid off. I've now accumulated $10,000 in a personal emergency account. I know this is small change to some people, but it's a lot to me! When I look back at where I started four years ago, this boggles my mind.

But now what?

My wife and I spent most of last week on Washington State's San Juan Islands. We took the trip in order to relax, but we also made time for a personal economic summit. Though our household finances are doing well — no bailout needed here! — it's been several years since we actually sat down to create a shared financial agenda.

Kris and I keep separate finances. We've divided the household expenses, and each of us trusts the other to take care of specific obligations. Our system works well for us, but requires periodic review to be sure we're working toward the same goals. The last time we created a joint financial plan was in 2004, when we bought our current home.

Last week, Kris and I drafted a new financial savings plan built around a shared vision for the future. We want to:

  1. Fund our retirement plans. Kris strives to max out her retirement plan at work every year, but my own retirement savings have been rather anemic. To remedy this, I've established a self-employed 401(k), which lets me contribute up to 25% of my income. I'm putting as much as into this as possible. We'll also contribute the maximum we're allowed to our Roth IRAs every year.
  2. Save for major expenses. Our second priority is to save for medium-term goals. Our house needs to be painted, for example, and that won't be cheap. We'll save together to meet that goal. Meanwhile, both of our cars are beginning to show their age (8 and 12 years).
  3. Pay off the mortgage. Not everyone agrees that paying off the mortgage is smart, but Kris and I want to have the house paid off when she retires in 15 years. (And we'd love to have it paid off sooner!) We've been making accelerated mortgage payments for the past year — now we intend to do even more. Any windfalls we receive will go to the mortgage.
  4. Have fun! Finally, we want to enjoy life. Now that we've achieved financial stability, there's no reason we can't use spare cash for fun: food, furniture, vacations. The key is to keep the spending reasonable, and to avoid debt.

These priorities are based on our own objectives and our own situation. What sorts of financial goals have you and your partner set? Does goal-setting work for you, or does it get in the way? How do you keep yourself on track? (Kris and I have a “mortgage acceleration chart” stuck to the fridge — it's a daily reminder of our long-term objectives.)

We're pleased with our progress as a couple. We're both saving. We're both investing. We're both able to afford indulgences. In fact, for the first time in my life, I feel completely in control of my financial destiny. It's as if all my hard work to eliminate debt is beginning to pay off.

Photo by woodleywonderworks.

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A. Dawn
A. Dawn
11 years ago

I think it is important to have a family meeting every month to discuss this sort of things. Also, there should be annual and semi-annual meetings to check progress and see if everyone is on the same page.
Cheers,
A Dawn
http://www.adawnjournal.com

RenaissanceTrophyWife
RenaissanceTrophyWife
11 years ago

Love the “financial summit” idea! I do the same thing on a much smaller scale with my boyfriend. We live together (woo hoo cheap rent!) but keep separate finances. Bills are split down the middle, and we plan for vacation expenses months ahead of time so we each know how much to save. Goal-setting works for us, since we’re both a little OCD. Short-term renewable goals for both of us include maxing Roths and 401(k)s, and we’ve both already established emergency funds for 1.5yrs of expenses. Long-term the big goal is a house down payment; we’re just saving as much… Read more »

ABCs of Investing
ABCs of Investing
11 years ago

Good idea to do this on a vacation.

I can’t understand why people place a different priority on paying down mortgage debt vs unsecured debt. Admittedly it’s not quite the same animal but paying it down is always a good thing.

Chill Bear
Chill Bear
11 years ago

Solo 401ks expire in a couple of years!

I’ll be putting in roughly $32k into mine this year. Feels good. That’s far more than some stupid matching program by an employer constrained by some brokerage agreement.

What’s even cooler is you can direct the investment yourself. Want bullion? No problem. As long as it’s stored in an accredited vault, buy as much metal as you want. (I’m not recommending this, just illustrating how much flexibility you have.)

Kin
Kin
11 years ago

Definitely a timely reminder. We’re starting to think about our long term goals again after they were upturned earlier this year by a new job/career opportunity out of the blue which threw our other plans into chaos. With a new baby we’ve been kind of treading water for the last 8 months, which is fine – we’ve not been going backwards either.

We’re going away in a couple of weeks so will make it a priority then – it will give us time to think about it before hand since we only really have 24 hours.

Trevor
Trevor
11 years ago

We do set goals; and, yes, they are extremely effective. Then we sit down and get the whole thing straightened out in our budget so it can actually happen.

And, honestly, that is the key! Get it in the budget and then it goes from becoming a lofty goal to a reality.

Tim
Tim
11 years ago

we have loose goals, but I think we sort of view things backwards. We spend an amount that is comfortable within our means, and save the rest. Since we live on such a small percentage of our income, we aren’t very concerned about having enough money in retirement (and we still have to define what retirement means to us). so we save as much as possible, and if there is something we want or want to do, then we spend money for it. if it isn’t something we need right away, we’ll delay. like a flat screen lcd tv, we… Read more »

LiveWellSimply
LiveWellSimply
11 years ago

I think the idea of a financial summit is fabulous. If you discuss finances when things are going well and you are enjoying a vacation, it avoids some of the stressful moments one can experience when discussing finances at, well, “more stressful” times 🙂 Over the last year, my only investments that did well were my high yield savings account and short term CD’s. They are definitely a safe haven in these crazy financial times.

sandi_k
sandi_k
11 years ago

For a long time, our goals were simple: fix up the house, save 12-15% of our income in retirement accounts, have a robust emergency fund, and take a nice vacation every now and then. In recent weeks, we’ve decided that we’ve become too lax, and a new goal would be transformative. So we’ve started researching buying lakeview property, and we’re fired up! Due to cashflow considerations, we’d been carrying a balance on a credit card; that will be paid off within 4 months. Then we starting socking away every bit of cash we can (while limiting things like eating out).… Read more »

Patrick
Patrick
11 years ago

With the current economic situation, do more people advise to pay off mortgage rather than invest? I agree paying off debt is never a bad thing but also understand the counter argument (in better financial times). Now, would you invest or payoff mortgage?

Tyler Karaszewski
Tyler Karaszewski
11 years ago

I find that it’s harder for me to decide on a goal than it is to achieve it once it’s set. I’m financially doing pretty well. I’ve got money in the bank, I save some of every paycheck, I owe only part of a student loan and a car payment, and I’m paying those off faster than required. What’s a good reasonable “next goal”? House down payment is an obvious one, but that’s a pretty ambiguous goal, given the current housing market. I don’t know where I’d buy a house, when the market will be stable enough for me to… Read more »

Caleb Nelson
Caleb Nelson
11 years ago

I personally sit down frequently and re-evaluate my financial direction. I think that there is nothing that deserves my focus more than this. (Considering I don’t have any kids as of yet) I love the way that you and your significant other have handled your financial situation. I think it is a very unique and successful way to make it to the top. I know I’ll see you there one day.

Caleb
http://www.mefinanciallyfree.blogspot.com

TosaJen
TosaJen
11 years ago

We call our financial plans our “five-year plan”, and we’ve reviewed/rewritten these every 6-12 months since we’ve been married. Now that we have kids, the horizon is out to 20 years or so (when the kids theoretically lose the financial umbilical cord). We plan for retirement, but given that DH is 47, retirement is part of the 20-year plan as well. (Don’t look at the investments! Don’t look . . . !)

C
C
11 years ago

I just had a “summit of one” since I was recently given a raise, and I will be getting a bonus at the end of December. This means that my emergency fund will hit $10K sooner than expected, and I can also pay off my car loan. I’ve decided that the extra money I’ll have each month will go towards my mortgage. I’ll also bump up my 401k contribution. I do feel like I need a fun goal as well…probably a spring trip. But then I wonder if I should be socking away money for an eventual second down payment… Read more »

Morgo
Morgo
11 years ago

My wife does not like talking about finances, but I have recently got her to enroll in an online, high yield savings account automatic savings plan. I keep trying to give ideas of what she could be saving for (i.e. new car, new house, going back to school, etc.) in hopes that she will increase her contributions. We also keep separate finances and have split up the bills, and this has been working fairly well for us. I try to persuade her to make smart money managing decisions, but I don’t want to seem overbearing.

Morgo
http://savinglincoln.com

Thomas
Thomas
11 years ago

Funny this should come up today! My new wife and I just spent about 2 hours this afternoon sitting down and setting some short and medium term (5 yr) goals for ourselves. We had already come up with a budget that included paying down my remaining student loan (no CC debt) and contributing 7% to my 401k (what my employer will match up to), but we didn’t really have any written goals beyond that. So we came up with a few, and I created a spreadsheet that showed what we’d need to put away per month and when to show… Read more »

Susy
Susy
11 years ago

Mr Chiots and I are trying to pay off our mortagage as quickly as possible. We only got a 15 yr loan 6 years ago and I think we’ll have it paid off in 2-3 yrs if our business contintues to go well. We’re making an extra principal payment each month. We don’t really have financial summits, but we talk about our financial dreams & plans often. We are constantly aware of our goals and what we’re doing in achieving them. We find that by talking openly and often we’re constantly thinking about our goals. We’re saving for a cruise,… Read more »

urbantux
urbantux
11 years ago

I just recently set my own short, mid, and long term goals. I am unfortunately still in debt so they all relate to working my way out of it. I am in the same boat as Morgo where my wife doesn’t really like to talk about finances. That is definitely something I am going to have to work on, especially if we want to get ahead. We have combined finances though, so we really have to be on the same page.

http://mymoneymylife.wordpress.com

KC
KC
11 years ago

We don’t really set goals. We’ve basically reached the ones we’ve set for ourselves to get on solid footing. Now we just continue to save and invest to build towards a very comfortable future. But we are in the process of a big move and I think I’ve found a new goal. We have so much stuff. I’m not sure why cause I don’t consider us as big spenders, but we have sooooo much stuff. My new financial goal is to cut back on the things we buy. We’re about to triple the size of our home and I’m really… Read more »

leigh
leigh
11 years ago

equally important than a spending plan- maybe more so- is having a plan for if hard times hit.

we were completely caught off guard when this happened to us. aside from the emergency fund and such, we hadn’t considered what constituted an emergency, what would we do if the e/r fund ran out (which, at the time, we thought was impossible) and stuff like that.

combine that with the fact that trying times are incredibly stressful on couples, and it really amps up the misery…

sizzy
sizzy
11 years ago

This is a great post! I recently returned from an enjoyable vacation in London, U.K and realized that while I was there I was not interested in shopping although I had planned extensively and had lots of money for it. I guess sometimes when you have it all, you see no need for waste. Upon my return to Vancouver, I had a ‘personal financial summit’ where I came up with a financial plan, forecasting the next 1-5-10-15-20 years. It includes buying an island in a lake in my home country (I am an immigrant here) and constructing a resort there… Read more »

Rose Fox
Rose Fox
11 years ago

My husband and I don’t have kids (or plan to have any), and we’re in our thirties, so our goals look something like this: 0) Pay bills. Set aside enough money for living expenses, staying fairly frugal. 1) Pay down debt. Don’t build up more debt. Beyond that, we have a general policy of preferring occasional big indulgences (travel) to frequent small ones (dinner out). Until the debt’s paid off, though, we don’t really have room for secondary goals. We were both laid off last week, him from his full-time job and me from one of my part-time jobs (and… Read more »

Writer's Coin
Writer's Coin
11 years ago

I’m also a huge gadget person, or at least I like reading about them. I’m curious about one thing: what phone do you have? Have you been reading up on the G1? How about the Blackberry Storm? I think in a few years these “super phones” are going to be pretty ubiquitous.

Daniel
Daniel
11 years ago

These are good ideas. I don’t personally recommend (or intend to) paying a house off early (mostly for reasons of liquidity), but I thought I’d remind readers about how important an emergency fund can be. See, I was laid off a little over 2 months ago, and I’m now living off that emergency fund that I built. Unfortunately I only had about 3 months of expenses, so that combined with unemployment will only give me about 6 months. Next time I get a job, which hopefully will be within 6 months, I’m planning to build a 12-month emergency fund before… Read more »

MattA
MattA
11 years ago

JD, give yourself some more credit:
“I’ve now accumulated $10,000 in a personal emergency account. I know this is small change to some people, but it’s a lot to me!”

This is huge! I have been following you for the past year, and I am heartened by your success. I can’t even claim to have $1,000 in the bank right now, but we’re living in some pretty lean times.

Keep up the good work!

mandy
mandy
11 years ago

My spouse and I also have ‘financial summits’ every 3 or 4 months. We are debt-free, contribute 15% to retirement savings, and have a 6 month emergency fund established. We had run out of ‘big’ goals that people always tell you to save for, and so we began to set some new primary goals. Since we are a 1 car and 1 bike family, we began to save for a new car, which we may need soon. We should have $18000 by the end of the year. We also decided to save the deductible on our health and car insurance… Read more »

Ron@TheWisdomJournal
11 years ago

When it comes to painting your home, shop it hard. I had quotes that ranged from $1,400 to $5,600.

In the end, I painted the front porch (and all its associated railings – ugh) and saved a ton of money there. I also taped the windows and trim myself since the painters used a sprayer.

Sometimes, doing a little work yourself that saves the painter some time will save you some big bucks.

Allison
Allison
11 years ago

Congratulations! Your hard work has paid off. I do envy you!

Shara
Shara
11 years ago

Hubby and I pretty much did this last weekend. We get our raises and bonuses at end of FY which means they will come through at the end of the week. We didn’t want the extra money to just be absorbed so we discussed our goals and so forth to determine where it should be written into the spending plan. He is really big picture and I am the detailer so when we hit major changes like this I call a summit and make sure we are on the same page, so I’m working toward the same big vision and… Read more »

Sam
Sam
11 years ago

We set goals in 2007 (to pay off all non-mortgage debt) and in 2008 (emergency fund, nused car, etc. – see my blog for more). I enjoy goal setting and the tracking, helps me stay focused. We do have some trouble with your #4 – fun. We talk so much about what we should be doing with our money, we put so much money away (if it sits in our checking account it gets spent so I move it to either ING savings or Fidelity for investing) we have a “no money” mind set. When I want to plan a… Read more »

Kate
Kate
11 years ago

What a great reminder to keep working together as a couple. Once you’ve passed the “how are we going to pay the mortgage” stage of live, it becomes easier to get slack about keeping finances a team effort. Thank you!

Mary
Mary
11 years ago

Okay, I’ve got 10k in an emergency/rainy day fund, but I still don’t feel secure. Why is that?

Daniel
Daniel
11 years ago

@Mary, That’s a question that only you can answer, but I’d say the answer depends on how long you can live on $10k. If the answer is “2 months,” then that might explain your feelings. If, instead, the answer is “10 months,” then I’d kindly suggest that you might want to reevaluate what you need to feel secure and where you get your feeling of security.

For myself, the next time I’m employed (see my previous comment), I’m going to build a 12-month emergency fund, minimum.

Chima
Chima
11 years ago

JD…your strategy sounds much like ours. Once we hit the $12,000 for our emergency fund, then we’ll focus on saving for an SUV so when we finally have a baby-hopefully in a year or so, we’ll have space for a baby car seat. Keep up the good work, and congratulations on hitting the $10,000 mark in your emergency fund.

AJ
AJ
11 years ago

Great information! I think money needs to be as much of a family conversationa dn effort as school/education/religion etc! Anotehr site that has ben helpful for me looing at my money and thinking about what i need and want to do it http://current.pic.tv/. I really like what you guys both have to say and I will put you in my favs so I can absord more of your excellent ideas and advice! Thanks again!

Jack
Jack
11 years ago

I know I have the ability to do all of the above suggestions with regards to a financial plan. But with kids, its hard and when there is only one income its even harder. I read lots of success stories like this and I am happy for the people that accomplished them. At the same time I get frustrated, as I alway come to the conclusion that they must not have kids because its very difficult to plan for anything when you have no control over what happens tomorrow.

Cheaplee
Cheaplee
11 years ago

Great achievements! Congrads to both on your discipline and your accomplishments.

Veronica Allenger
Veronica Allenger
11 years ago

Good for you guys for taking control of your life. I spent the majority of my life from paycheck to paycheck. About six months ago, I made it priority to become debt free. After a few months, I was still struggling. I came to realize whether I was focusing on getting in or out of debt, I was still focusing on debt. Now, I’ve set aside a certain amount to go towards my debts every month so I don’t even have to think about it, and still have 70% of my income to live off of comfortably. Now I focus… Read more »

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