Specifying Goals – Using Myself As A Case Study

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Earlier today, I wrote about techniques for defining personal finance goals that you can reach by making them as specific and as realistic as possible. So, how do these techniques really apply to some real world personal finance goals? I took five of my own goals and spent some time working them out to make them more detailed and more accessible.

Buying A Chest Freezer

This is one of the first purchases we’re going to make when we get into our new home. Where I grew up, a chest freezer was a fundamental part of day-to-day life. We would store massive amounts of food in it – vegetables grown in the summer for the winter, and game caught in the winter for the summer. The cost of food acquisition for us was made much, much smaller because of this freezer.

So, let’s clarify this goal:

When? I would like to own the freezer by the end of September, so I have five months to get there.

What does it cost? The unit we are looking at costs about $600.

So, “I wish to buy a $600 chest freezer in September 2007″ is the clear goal. From this goal, instead of the much more general “I want a chest freezer,” it is very easy to develop a plan with immediate milestones, something tangible that I can start accomplishing now.

Establishing An Eighteen Month Emergency Fund

I’m a big fan of emergency funds and I wish mine were much larger than it is. Currently, I have a fund that can supply four months worth of living expenses (note that this is not salary).

So, let’s clarify!

When? I don’t have a specific date for this to be completed, just that there is steady progress toward the goal.

How much? This amount must equal eighteen months’ of living expenses. I am currently estimating what I believe expenses will be at the end of this year, after the home purchase and the birth of a second child.

How much each week/month/year? Since I don’t have a firm finish date, I must establish how much I will contribute over a set period of time to give myself a workable metric. I plan on putting in $100 a week as a minimum for the time being.

With these factors, “I want an eighteen month emergency fund” becomes “I want to build an emergency fund with $100 a week until it contains eighteen months worth of living expenses.” Stating the goal this way gives clear short-term milestones right within the goal statement, making it easy to see whether I’m working appropriately toward the larger goal.

Taking A Family Vacation To Europe

My wife and I are planning a European vacation when our daughter is twelve. Although this goal is very far off, it is still in our minds. How can we really clarify this goal?

When? Right now, this would mean that our vacation would occur in the late 2010s.

How much? This is something that we plan to define with our children as they grow older, as we want their input throughout the process.

So, what can we do here? “I want to take a family vacation to Europe” becomes “I want to take a family vacation to Europe when my daughter is twelve and begin planning it as early as my son begins taking any interest in the idea.” Thus, we have a milestone to begin formally tackling the goal.

Buying A Dream Home

This is a big one, as we’re already envisioning our dream home even before our upcoming first home purchase. This goal has us already saving, and thus transforming the goal from “I want a dream home” into something more tangible and concrete was important.

When? No later than my 45th birthday, so 2023 at the very latest.

What? My wife and I have gone to extensive lengths to model exactly what we want, and we know that this will change over time.

How much? We’ve also done a careful cost estimation of the house and have a pretty good estimate of what it would cost today. Right now, we’re targeting a number of $300,000 to have at the time of the groundbreaking on this house. This, plus the value of our home, should be somewhat close to building what we want unless the housing market continues to grow astronomically.

So, instead of “I want a dream home,” I say “I want $300,000 toward a dream home by 2023.” This transforms a nebulous idea into something that I can develop an investing plan around.

Giving My Two Children Each A House Down Payment As A Wedding Gift

This will come roughly ten years after the purchase of our dream home, and thus we can clearly define the start date for working towards this goal as being when our dream home is finished. Since the “when” period does not start until then, this isn’t really a goal, but more of a dream at this point.

How do we separate goals and dreams? We’ll talk about that tomorrow.

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13 thoughts on “Specifying Goals – Using Myself As A Case Study

  1. Given that a house down payment will very likely exceed the amount allowed by the IRS before triggering a gift tax, are you planning on accumulating these amounts in the children’s names? A trust, perhaps, that they would not be able to tap at will for a more frivolous reason? If not, how else would you go about transferring that large of a sum to them?

  2. You should travel sooner than that! And please don’t just go to Europe…China and Japan are much more gratifying in terms of seeing another world.

  3. If it was me, and I wanted an 18 month “emergency fund” I would only put 3 to 6 months of that money into a cash equivalent (like a high yield savings account) and put the remaining 12 months into stocks, because otherwise such a huge emergency fund is a massive opportunity cost (you would have a years worth of living expenses earning 5% instead of the market average of 10%)

    The point of having an emergency fund is to have readily accessible liquid capital to draw upon as needed. But on 6 months notice, stocks will be just as liquid as a savings account. While stocks might suddenly drop in value, the risk of this occurring is balanced by the excessive emergency fund monies you have accrued.

  4. Man, I feel kind of unlucky. Everyone always talks about how they are saving money for their kids’ college education, saving money for a down payment for their kids’ homes, etc. I got nothing. I had to pay completely for my own college education (graduated 2 years ago). I just bought a house, and nobody gave me any money for a downpayment.

    I must say, though, that in many ways it’s actually better. I feel like it’s *my* accomplishments. *I* paid for college with my own money (well, student loans, but they’re nearly paid off by now). I wasn’t just some slacker whose rich parents paid for me to attend an elite private school, while I fooled my life away and partied. It was my money, and I wanted to make the best of it, so I studied hard and made good grades. Likewise, my new home is *mine*. Nobody had to assist me in buying it. I bought it all myself.

    This is not to diss you, Trent, for your own goals. I just grew up to be self-reliant, and as such, I highly doubt I will assist my own kids with college or homes.

    I feel a better way is to simply train them to be financially savvy, like the rest of your posts. Teach them the value of money. Teach them how money compounds. Teach them how to work hard, and save, and to become self-reliant. I think the amount of satisfaction with oneself is much higher when you actually have to struggle and work hard to earn your own living.

  5. Whilst giving your two children downpayments as a wedding gift is a lovely idea, I would avoid getting too hung up on that specific thing.

    What if they don’t want to get married or buy a house? Would you give them the equivalent amount of money to spend on something else (graduate school maybe)? Or money to be spent on a downpayment not linked to getting married?

    I know they’re tiny, and will probably go on to lead normal conventional lives, but getting too caught up in the details of a dream can mean that you miss the point.

  6. Hey Rick, how do you account for those of us whose comfortably-off parents paid for us to attend elite private schools where we worked unremittingly for four years in pursuit of an education that’s profoundly personally meaningful as well as socioeconomically valuable?

  7. The freezer is an excellent purchase when you’re living a frugal life, however I feel you’re greatly overestimating the price. You should be able to get a chest freezer for around $80-$150 new at Sears. But even better, keep a sharp eye out in the newspaper classifieds. People get rid of these all the time for bargain basement prices. My husband and I got a practically new upright freezer from a couple who were moving and just needed to get rid of it – for only $100! I love it! Don’t throw your money away if you don’t have to. Also, about the kids’ home down payment: I can’t think of a bigger waste of money. I think it’s wrong to take that goal and sense of accomplishment away from THEM. Once they’re 18, let them (aside from college, perhaps) learn how to save and buy a home for THEIR family – if that’s what they desire to do.

  8. He’s probably looking at one of the newer Energy Star freezers, and it sounds like he’s looking at a big one–maybe 20 cu. ft. That’s why the high price. Freezers can be expensive to run (also increasing their environmental impact) if they are older or less efficient models. It’s a TCO thing.

  9. For the downpayment: just give them enough to give a boost. My parents and my in-laws gave us just enough to enable us to take what we had and buy a house. Back in the 80′s that was about $3000 each.

    Personally, I feel even that is unnecessary generosity, but really nice of you!

  10. My parents helped me out with the down payment for my condo. I refused the gift at first, not wanting to live off the Bank of Mom & Dad, but they finally convinced me when they said I’d eventually be inheriting some money anyway but that I probably needed it more now than I would in 30 years. They didn’t need the money, they wanted to help, and it probably cuts down a little (very little) on the taxes they pay because of the interest it’s not earning.

    (And Trent, I have to laugh [or maybe cry] at the idea of a $300,000 “dream house.” It has ceased to phase me when I see ads for starter homes in the Boston area listed at $500,000!)

  11. Two things: if you live in an area with an active Craigslist, use it. There are so many people who are getting rid of really nice stuff for FREE.

    Also: If you raise your kids right, even if you pay for their college education, they will not be slackers who “fooled [their] life away and partied.” With my parents, doing well in school was pretty much a moral issue, so even though they were willing to pay all of my college costs, I still graduated with honors and spent far more time studying than perhaps I should have. Even if you don’t go as far as my parents did, if you raise your kid to have sense, he should value achievement and know that his grades will matter in the future.

    Plus, honestly, if you pay for your kid’s education, you will have far more control over their lives, especially if they don’t live with you anymore.

  12. Also, although I think it’s great that you’re saving up for these goals, you probably shouldn’t tell your kids (when they’re old enough) how much you’re saving up for their college funds or that you’re giving them a house downpayment for a wedding gift. Any number of catastrophic things could wreck your plans beyond the capacity of your emergency fund (natural disaster destroying your home, wife getting cancer or dying, daughter being autistic/ schizophrenic, etc.), and there’s no point in making your kids feel resentful if you can’t follow through on your plans.

  13. A freezer is a great way to save money on your groceries. I would recommend getting a large freezer as I learn all the time new things that will freeze very well. An energy star appliance is a must. We bought a chest freezer 6 years ago and get tons of use out of it. The only problem with a chest freezer is that it can be difficult to find items at the bottom. But then I have not developed a system of freezer organization.

    On the idea of giving your children a down payment for their first house, I think that is a great idea. I have thought of doing that myself if we are able to afford it. I have thought of putting a condition on it though. My kids would only get the money if they had zero credit card debt.

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