Revising and Setting New Money Goals

Over the past few months, our finances have been in something of a “reset” mode. In the process of taking more control of the advertisements on The Simple Dollar’s website (which is my primary source of income), I had to change billing systems. With my previous primary advertising representative – Google – I would get paid the month after an ad runs – so if an ad runs in May, I would be paid for that ad by the end of June. In April of this year, I switched most of my advertising away from Google to Federated Media, which handles things in a different fashion. Since they run in a campaign-by-campaign fashion, if I run an ad in May, I have to wait until September to receive payment.

So, at the end of April, we made the switch. Thus, at the end of May, I received my last payment from Google – and then received essentially no income during June, July, and August (and much of September, too).

Ouch.

Now, this switch was, in the long run, worthwhile. My monthly income will go up. However, it made for a painful summer. We had to tap strongly into our “opportunity” fund to make this happen – I am very glad that we had such a fund in place to make this transition possible.

But, here we are, at the end of the summer. We now have a depleted “opportunity” fund and we’ve even touched our emergency fund a little bit, but our monthly income is about to return to normal – in fact, perhaps a bit higher than normal.

In other words, this is a perfect time to re-assess our financial goals for the near future.

Over breakfast several days ago, Sarah and I talked about our plans and here’s what we came up with.

By the end of 2009, we intend to replenish our emergency savings and our “opportunity” savings to the balance they held on April 1

Maintaining an “opportunity fund” is something that’s very important to both of us. It allows us to take advantage of opportunities that life throws our way without tapping into our emergency fund, since a great opportunity isn’t really an emergency.

In fact, maintaining our “opportunity fund” was the big reason we elected to finance a Prius early this year instead of paying cash for it. After a lot of thought, we decided that it was better for us over the long term to keep that cash on hand for other opportunities – and it turns out we were right.

However, that leaves us with a strongly depleted opportunity fund – we lived out of it this summer, since we viewed this transition as an opportunity, not an emergency – and even a bit of money taken from the emergency fund, too (to fix a broken-down truck).

Our goal for the rest of the year is to replenish both of these funds to the level they were at prior to this past summer. In terms of our day to day living, it doesn’t mean too much, but it does mean that our excess income will be put directly into savings before anything else. I think it’s very realistic to do this by the end of the year, based on what we expect to bring in over the last four months of 2009.

That brings us back to where we were prior to the “summer of transition,” as I like to call it, but leaves us in better shape than before by far. Our monthly income is higher and even if I chose to shut the site down for some reason, we’d still have three more months’ worth of income already earned to survive off of, which is a much nicer position.

At this point, we’ll turn our attention to our remaining debts.

By the end of 2010, we intend to be debt free except for our mortgage – and that includes replacing our semi-functional truck with a van – while maintaining our fund levels

Sometime in the next year – and it may be sooner rather than later – my truck, which is on the verge of complete breakdown, will be traded in for a late model used minivan and we intend to make up the difference in cash. We’re trying as hard as we can to stretch this out, largely functioning as a one vehicle home at the moment. So, one big priority is making that van purchase happen.

Obviously, my hope is to stretch that purchase out until at least near the end of 2009, at which point paying cash will be relatively easy thanks to our renewed savings.

Once the van is ours and paid for, our only outstanding debts will be our mortgage, the remainder of our Prius (after the down payment and several months’ worth of regular payments), and a single student loan. By the end of 2010, I intend to have the non-mortgage debts paid off, and I’ll celebrate each success right here on The Simple Dollar.

I’m going to essentially use a debt snowball to wipe out these debts, ordering them by interest rate minus any tax benefits. This means the Prius goes first, then the student loan, then…

Yes, the mortgage.

After the other debts are paid off, by the end of 2010 at the latest, I’m going to throw everything I’ve got at the mortgage. We’ve already

The big key is that none of this changes how we live day to day. We’ve basically done the same things day in and day out since 2007 or so. We spend less than we earn (excepting, of course, this summer, where income was quite low by choice). We don’t spend extravagantly. When opportunities present themselves – or we’re faced with emergencies – we just use the cash we already have saved for these purposes.

In short, for us, extra income just means we arrive at our big goals a little quicker. Our dream is to be living in our long-talked-about farmhouse before the kids are finished with grade school – within nine years.

That means daily extravagances keep us from our dreams. Every day we continue to live cheap between now and then is a day we march closer to our goal. Every day we’re able to take advantage of an opportunity that comes our way is a step closer to our goal. Every emergency that doesn’t require us to use plastic means that … well, we’re not closer, but we’re not going back any farther than we have to be.

Frugality underlines everything we do. Sure, we strive to earn more along the way, but if our efforts in that direction mean spending with reckless abandon, we’ll soon find ourselves where we were in 2006 – in a very rough place that takes a long time to climb out of and even longer to reach the things we want. And that’s a scary place to be.

Set goals. Take care of them by living frugally. Get there faster by earning more and taking advantage of opportunities. That’s what it’s all about.