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?
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:
- 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.
- 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).
- 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.
- 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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There are 38 comments to "Setting and achieving family financial goals".
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
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 as we can towards that, and plan on buying when we see the right house for the right price. There’s no real “on track” since we just try and max out, but we do discuss our level of savings monthly or so.
A big thing that makes it work was our honesty about finances BEFORE moving in together. Neither of us carry credit card debt, and I only have student loans (at an interest rate lower than inflation). Knowing that your significant other shares your financial (and other) values is a very comforting thing.
Congrats on your achievements, JD, especially in such a short timeframe. I really appreciate that you intersperse sound financial advice with a balanced perspective on enjoying life.
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.
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.)
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.
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.
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 delayed for 5 years, and even then we ended up with a smaller one than we wanted to get, but didn’t need a larger one.
we talk about money more, but we don’t have financial summits. If we did, we’d have to go to Geneva or Sharm al-Sheikh or Cyprus or Camp David or something like that in order to hold the Summit.
but i agree, you have to have goals to drive you forward.
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.
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). Our hope is to have enough money to buy a lot in 2009, and begin building in 2010.
I thought we were doing well, but it’s apparent that having a positive goal towards which to strive is much more inspirational than “savings targets” which are a percentage of our income.
Sandi
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?
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 feel comfortable with buying a house, or even the general neighborhood of how much a house will cost then.
What else do I want beyond that? I want one of these, but they cost nearly $400k new (you can get one five years old for a paltry $250k or so), which is sort of a ridiculous amount of money to spend, and even if I could save up enough to buy one, I couldn’t really enjoy it the way I want until I retire anyway. I’m only 27 now, so I’ve got one ambiguous goal for the next few years, and one super long-term goal for 30 years out, and I may change my mind on how I want to spend my retirement before it gets here anyway.
So, I quite literally am earning a salary that’s more than I know what to do with, and I’d really like to have some more definite direction as to what goals I *should* be setting, as I feel like without definite goals, I’m free to spend extra money on whatever I want, which mostly ends up being expensive meals out and yacht rentals. That’s fine, I’m not going into debt for it, but maybe I could get more out of that money by putting it somewhere else, if only I knew where to put it.
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
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 . . . !)
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 — I have a great condo that I might like to keep as a rental property when I’m ready to move into a house. Lots to think about!
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
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 how it would work.
We decided to use the snowball method in saving for these goals, and so in order of importance to us we’re going to put all extra cash to paying off the student loan before Dec 09, then stretching out 3-month emergency fund to 6, then having 2 grand put away for a new baby fund (startup expenses), then setting aside 20 grand for a down payment on a house. It won’t break the bank, and we should be able to reasonably do it in just over 3 years (instead of the five we were planning on). I was amazed, but the numbers don’t lie. Now I am really psyched to keep putting away that cash.
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, and until we go on it that money bolsters our emergency account, which is very respectable. We have various accounts set up that get deposits each month to cover auto, home, charity & other expenses so we’re never suprised by an expense, we already have money set aside for these expenses in an account and if it builds up too much it’s transfered to retirement.
Our financial motto is: Save More, Make More, Enjoy More, Need Less. We are constantly looking at our finances to make sure we’re working towards these.
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
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 afraid we’ll accumulate more things. So hopefully by making this our new financial goal we won’t fill up this house quite so fast (like never!) and we’ll have an even more comfortable future. Or perhaps we can do something more worthwhile with the money we save – like give to charity.
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…
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 in 15-20 years from now. It’s all possible and I have already saved a lot this year towards that goal. I have no plans to retire per se, I would be bored. I have done most of the things that people seem to look forward to in retirement and will continue to do them. I also like the fact that my billionaire role models don’t talk retirement this, retirement that etc… I am confident that in future I will be able to live off my wealth.
I am also saving for my wedding even though I am currently not dating. Again, it was a clear item during my financial summit.
JD, thank you for the great work. I wish all the readers success in their financial plans.
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 boy was that a lousy week), and after going through the usual shock and panic reactions, we realized that it really didn’t make a difference to our finances other than putting a temporary hold on debt overpayment. (We’re using the snowball debt repayment method, which entails paying the minimum on all debts other than the highest-interest one, which you pay down with as much extra cash as you can afford, but our extra cash is zero until we get our job situations sorted out.) Otherwise, we’re just staying in the same fairly frugal mode we were already in. My part-time and freelance income and his severance and unemployment benefits will be enough to keep us afloat until one of us scores another salaried job. My lesson from this was that diversified income sources are a really wonderful thing.
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.
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 I do anything else.
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!
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 plans since we consider the emergency fund to be more for losing a job. We have the health insurance deductible saved and are working on the car insurance now.
In 3 months, we’ll have another meeting, reevaluate these goals, cross some off the list, and put some new ones on the list. It is always encouraging to meet a goal, so we hammer away at one or two goals at a time until we meet them.
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.
Congratulations! Your hard work has paid off. I do envy you!
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 he understands the details that will get us there.
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 vacation Mr. Sam questions whether we can afford it. I think that I need to loosen up our budget a bit and also stop making our money/budget/goals such a major focus.
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!
Okay, I’ve got 10k in an emergency/rainy day fund, but I still don’t feel secure. Why is that?
@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.
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.
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!
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.
Great achievements! Congrads to both on your discipline and your accomplishments.
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 on prosperity. And I feel 10 times better.
Thank you for sharing your success!