Everybody needs goals. How silly would it be to pack up for a vacation, get new tires on the car, schedule time off work, pack snacks, then get in the car, say “Ok where am I going!” Are you hoping to end up in a tropical beach resort by driving aimlessly? But, my car is ready! I’m all packed! I deserve this vacation! Well… not really. No matter how well you prepare, if you have no goal and no plan on how to get there, it is meaningless.
Finances are the same way. People strive for that six figure salary or that one stock pick that will make them rich. If that is your main financial goal, that sucks. Much the same as my opening story, if you do not have a goal in mind, your best preparations are for naught. Say you land that great six figure job. Whats next? What are you going to do with that?
Regardless of where you are in life, you should always be working towards financial goals. The main financial goals in my own life are 1.) to get out of debt and stay out of debt. 2.) buy a home with 20% down with a payment I can comfortably afford. And 3.) save enough money to live in such a way that blesses my family and others.
1.) Get out of debt and stay there
Goal 1 is related to an earlier article I wrote in on how my wife and I paid off our student loan debt. Now that this debt is gone, that is one less burden to worry about. One less bill to pay. One less weight off my back for what would have been 10 years. Getting through your debt will give you the confidence needed to continue on your own financial journey.
2.) 20% down on a house with a comfortable monthly payment
The second step for my wife and I is to buy a home. I understand that this may not be a goal for some of you, but my wife and I live in an area of the country that we enjoy, we enjoy our jobs, we have made solid friendships, and we want to grow our family here.
Buying a home is the biggest financial decision we will have made up to this point in our lives. So, naturally, I want to do it right. Hence we are now saving 20% down and plan to take out a 15 or 20 year mortgage in order to pay down our debt in a reasonable time frame, and save hundreds of thousands of dollars vs a 30 year mortgage.
Getting to that magic 20% is difficult, but we are saving right now with the end goal of reasonably buying a house. Yes we could do a 5% down payment with a 30 year mortgage. If we wanted a house that was worth $150,000, over the life of the loan if we paid 5% down at 3.92% interest over 30 years we would end up paying $242,544. While if we paid 20% down over 15 years with the same percent, we would end up paying $158,908 over the life of a $120,000 mortgage. That is over $80,000 in savings between the two. Any simple mortgage calculator can give you some rough estimates.
3.) Save enough for retirement in order to bless my family and others
Finally, we want to save enough to have options in retirement. Honestly I have no way of knowing how long I will live or when I will retire or what I will do. Having a large enough nest egg gives you the option to retire in your fifties or earlier if I want. Or if you really like your job you can continue working and have more to spend or give as you see fit.
When it comes to achieving this goal, time is the number one factor to have on your side. Since the start of the S&P 500 in 1926, it has yielded between 10% and 11% return. The S&P 500 is 500 tracks the stock market performance of 500 of the largest U.S. companies. If you have nothing in your retirement account yet save $500 a month from age 30 to age 60, you could have over $1,100,000!
Conclusion: Don’t give up!
Go back though this list and fill in your own financial goals. You already own a house? Great! Skip it or make a new goal! You have not contributed anything to retirement? Start with $100 a month and you will end up with over a quarter million dollars over 30 years at 10%. Start somewhere!
If I do get that big raise or my wife lands a super lucrative job, our goals will not change that much. We may get there quicker or have more options on the way there, but at the core I sleep well at night knowing that we are making our money work for us, instead of just working for our money.