From my perspective, short term and long term financial goals are fairly easy to plan. I want to spend less in the next month (and save more while paying down loans), and I want to save for retirement; these are fairly straightforward goals. The challenge for me was to define a set of intermediate-term goals – ones that I want to meet in the next five to seven years. These each give me a general goal to work toward that has a conclusion in sight, whereas retirement is much further down the road. A review of these goals might bring some inspiration to your financial planning, so let’s take a look at them.
Goal #1: I want to have an eight month emergency cash fund. Right now, my emergency cash fund would cover approximately two months, which was my first goal. Now that I’ve reached it, I want another six months in reserve. To do this, I am putting away approximately five percent of my monthly income to it, and the fund is earning about a 4.5% return. I should reach the desired level in about four and a half years, barring any major emergencies.
Goal #2: I want to pay off all remaining outstanding loans.
I already completed the first leg of this goal a couple months ago, which entailed paying off all outstanding credit card debt. I currently have an automobile with a relatively small amount remaining which should be fully paid off early next year. After that is the big one, which is a sizeable student loan debt. I am currently paying about ten percent of my monthly income for the car loan and about eight percent of my monthly income in reducing the student loan debt; when the car loan is finished, the student loan debt will be next.
Goal #3: I want to buy a home.
This is more of a need-based situation. We are currently paying a substantial amount in rent, but we are having space issues – the apartment is very nice, but quite small. Given our current monthly budget, I feel that we can reasonably make total house payments twice that amount (the mortgage + the insurance + the taxes), which gives us a number to work with. The biggest problem is that we don’t have an appropriate down payment, which means we’ll be looking at an 80/20 home loan.
The third goal is the one that brings me the most worry, as I feel that I am a bit ahead of pace on the other goals. We are slowly beginning the house hunt, but we are in a lease situation for nearly another year, so we aren’t jumping into it head first, especially given the softness of the local home market (some amazing homes at reasonable prices have been on the market for many months).
Intermediate goals enable me to keep my eye on the ball beyond merely saving some money each month. I can see myself reaching these goals in the future, and the reaching of each goal will remove some stress from my shoulders and move me one step closer to financial independence. I encourage you to set some intermediate-term financial goals for yourself, as they give you something to work towards and they feel like a major accomplishment when you reach them. I’ll never forget the day I sent in my final credit card payment.
I have a bottle of wine put away for the accomplishment of each goal (one for the home purchase, one for the eight months of emergency reserve, one for the auto loan, and one for the student loans), and the night that each goal is reached, my wife and I will pop open the cork and reflect with a smile on our progress in turning our finances around.