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:
- 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.