Setting Financial Goals

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Setting specific financial goals is more effective that just saving money.

jar of money on concrete by grassy lawn, with text overlay: Frugal Fridays.

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About four years ago when we realized we had no money and a whole lot of debt, it was easy to make financial goals. We just wanted to be out of the hole!

Honestly, that was all I could think about. And it was odd to think that it would ever happen. 

After eighteen months of scrimping and saving, we paid off our last credit card, American Distress. We breathed a sigh of relief. At about the same time, we sold our home in Kansas and actually broke even on that transaction; a minor miracle in 2009. We socked the equity (the initial downpayment) into an emergency fund and found ourselves ready to cross off our list Baby Steps 1, 2, and 3.

Those baby steps would be our financial goals up to that point:

  1. Establish a $1000 emergency fund.
  2. Pay off all debts.
  3. Fully fund a 3 to 6 month emergency fund.

Getting to that point seemed like such a monumental victory that we just sat down and rested. For a long while. We saved our money where we could but we just tossed it into a nebulous account that didn’t really have a name.

It wasn’t that we didn’t want to continue, it’s just that we weren’t really sure what to do next. Those who follow the plan outlined in The Total Money Makeover will know the next few steps recommended by personal financial coach, Dave Ramsey:

4. Invest in retirement.
5. Establish kids’ college funds.
6. Pay off the house.

These steps often get moved around depending on your season of life and the income you have at your disposal. We’ve hemmed and hawed about taking the steps in order or out. After a few years of just “saving money,” we’re ready to get more serious about financial goals.

We’ll take Door #4: Retirement investing.

While we do have six kids to send to college, we both know from personal experience that if you want something bad enough, you will find a way to make it happen. If FishKids wanna go to college, they will do it. We fully intend to help them with their college expenses, but since we’re getting a fairly late start at retirement investing (we started at 38 and 48), we need to make up for some lost time.

We don’t have visions of grand retirement vacations and homes in exotic locales. We just want to be self-supporting.

We haven’t totally figured out our plan for this, however, we are going to try to put away the maximum in Roth and Sep IRAs as well as start a 401K with FishPapa’s employer.

Make specific goals

We’ve found that blindly saving is not as effective as giving your goal a name. To “save money” is not as motivating as to put a dollar amount toward a certain project or to specify a certain financial goal.

It’s about time to get back to climbing that mountain.

How ’bout you? Do you make specific financial goals?

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  1. On Friday my husband got a very unexpected raise. A raise that has us both seeing….our savings build!
    Some basic goals this year: 1. save $3k in basic savings acct. This money will go towards our larger bills we get throughout the year, and anything that may come up. 2. we’re debating on weather we want to pay off our cars right now. We have the cash for it, but it’s a lot of cash to part with. 3. save. save. save. Aside from our mortgage and cars we have no debt. We’ve been living “paycheck to paycheck” for awhile and were not able to save as much as we had wanted. I loved reading eveyone’s responses, I am inspired and highly motivated! 😉

    1. That is fantastic! So happy for you!

      If you haven’t already, I highly recommend reading The Total Money Makeover. It has a great plan (and rationale) for paying down debt.

      1. Thanks! We’re pretty happy about it too! We plan to keep a little extra in our checking account, and stick the rest away in savings, pretending like the raise never happened. 🙂

    1. Getting out of debt was far and away the best thing we ever did (besides get married and have kids.) Go you!

    1. Dreaming a big hairy dream is a little scary. My mom has always encouraged me to reach a little farther than was doable. It makes me stretch.

  2. Wow – I am impressed with everyone else’s posts and steps in saving.

    We (27 and 29, no kids) are still working on paying off debt from when we were unemployed and living with my parents after college in 2010! Oh that was the life <– heavy sarcasm. 😉 We had a couple thousand in credit card debt at the end of that year so our best decision was to get a low interest loan at a local bank.

    Now to work on Step 3. And saving to move somewhere, buying or building a house.

    1. Have you read The Total Money Makeover? For where you guys are in life, I think this would be an ideal book for you to read. I wish someone had told me about it thirteen years ago (when I was your age). Highly recommend it!

  3. We budget what we need for living expenses and then everything else goes into a savings account for a down payment on a house. Steps 1-3 are completed and as for step 4, all of my income goes into our Roth IRA (10k, fully funded for each of us every year, this is non-negotiable) and 5% of my income goes to my 403B. Basically, I work so we can have medical/dental/vision insurance and fund our retirement. We are 28 and 29, have no children yet and have 35,000 saved for a down payment on a house but still need to focus on our goal of 50k or a down payment. I agree with the college fund sentiment, if you want something bad enough you’ll find a way!

  4. Baby steps 4-6 here too! We diverted down Baby step 3b to buy a house and then went back to 4 where we’ve been plodding for the last couple of years. This year we will make significant gains in step #5 and start Baby Step 6. Last year we had to finally set aside some sink funds for the things we hadn’t replaced… furniture (everything we had was a hand-me-down from before we were married 15 years ago) and new computers (7 year old computers need replacing even if hubby is a tech guy). We also had a couple Murphy’s (mainline clean out for plumbing and a patio drain that didn’t drain). Just need to get diligent again about that snowball and throw it at the mortgage.

  5. We have finished baby step #3! Now we are focusing on saving up enough for a down payment on a bigger home. Right now this seems like an extremely daunting task, I mean, I’ve never thought about saving up 50K before! This should take us about 4 years. I hope we can stay on track that long! 🙂

  6. My darling husband and I need to make a date to do just this…goal setting, and taking a serious look at our finances. We went through Financial Peace University several years ago, and enjoyed getting a good handle on our financial situation. The train has derailed, and we need to get it back on track. Thanks for the encouragement! 🙂

    1. It’s easy for that to happen. Don’t be discouraged.

      But, go plan a $ meeting. 🙂

  7. We are terrible about setting financial goals. I think part of this is because we don’t have anything super pressing like credit card debt or buying a house. Right now we want to replace the windows of our house and we need to change the way we budget so I can make some changes in my career.

    We haven’t established college funds for our kids and don’t plan to. We’re on track to have our house paid off when the oldest is 18 y/o and my parents have set up education funds for both our children. We agree with your theory that if you want something bad enough it will happen.

    In terms of paying off the house this is where I feel like we’re missing something. We already pay an extra 50% on our mortgage every month which has us on track for an early pay off. But that’s still only paying it off in 20 years rather than 30. Yesterday I did the math and if we were to live super super bare bones while continuing to save responsibly and fund retirement we could double that payment. But that still only gets the house paid off in 7 years. I commend people who do that but we decided we don’t want to live that way for that long. We didn’t buy too much house for our income and I don’t feel like we live extravagently. If we were trying to dig ourselves out of consumer debt I’d be all for sacrificing to pay it off (as I’ve been there and done that when I was single and it sucked) but we’ve decided that’s not what we want to do for the house. I guess we’re wimps. 🙂

    Now, if our income suddenly increased you better believe we’d be throwing more on the house. No interest in upsizing here!

    1. There are so many ways to slice and dice that housing thing. We haven’t bought in California since our move back. Some people think that’s silly. But, considering all the parameters, it doesn’t look like the best thing for us.

      You gotta go with how the numbers crunch for you.

      1. We’ve been in the house for six years and honestly we would have been financially better off renting. Considering property taxes, the little equity we have in the house due to the market tanking, plus all the money we’ve put into things like a new garage roof, parking slab, new furnace and air conditioning, etc. the short term pay off isn’t there. I don’t regret the decison because I love the house and neighborhood but I totally get why you wouldn’t buy right now.

        1. We still keep an eye on the market. We might be singing a different tune if it ever hits the bottom here. It’s still going down in San Diego county. But, if we found THE perfect house, we would def consider. Sounds like you found one. 😉

  8. We have fallen into the same trap! We paid off all of our debt about 8 months ago and paid cash for braces in June. It was great! But since that time we haven’t done much financially.

    We have bought some things that we needed but were on hold, we have beefed up some of our savings funds and saved some for the next set of braces. We have put a good bit of money into car repairs. But we have NOT tackled the next savings goal.

    We have not added anything to our Emergency Fund in years – it is time to start contributing each and every month. We also have another set of braces to pay for (2 of 4!) so we need to focus on that. Numerous house repairs are also needed.

    I sometimes feel like we have too many goals and not enough money to go around. BUT we have to start somewhere. It is time to get motivated again! Thanks for the encouragement.

    1. After scrimping and saving to pay down debt, it’s hard to not want to enjoy it for awhile. But, “gazelle intensity” does pay off.

  9. We’re almost in a similar boat. We did the steps a little out of order as well – the house will be paid off by the end of Feb and then I have 1 student loan left. The interest rate was higher on the house so we chose to focus on that first. The student load should be paid off either by early summer if everything goes as planned or the end of the year.

    We both currently put money in a 401K/403B plans, but I think my next goal is to start contributing to Roth IRA’s and max those out. We’re both 34 and 38 so I want to make sure the retirement savings is there.

    We have 2 little girls (almost 5 and 2) so we also need to start putting away for college – which I’m not quite sure how I want to do that. I’m not a big fan of the 529 plans since you have to use that for education. That will be the other thing I need to figure out this year.

  10. Changing our goals up a bit this year. Last year we were focused on paying off the house, but then towards the end of the year, we put that to a screeching halt as we started thinking about the housing market.
    If my husband were to lose his job (please Lord no), then push come to shove, we could always walk away from a house (as a last resort). But what we don’t want to happen is to get to our elderly years and not have a leg to stand on – I don’t think we can fully depend on social security based on the way things are going. I am 39, my husband is 36 and I feel like our 40’s is going to be a critical time to start loading up the 401K and Roths and such. We currently only give 3% of our income to 401K, but we’re gonna increase that to 6% with his next increase (if they give them this year – jury is still out). Our 6month emergency fund should be complete by this April hopefully, and then maybe we can consider contributing to other retirement venues. I HATE that we have stopped paying extra on our house because I don’t like debt. But I’m thinking in a few years (2-3) I’d like to downsize and so maybe we’ll gain momentum then. For now, it’s all about retirement.
    Love your blog. :o) Have been a subscriber via RSS for a while now.

  11. My husband and I are huge goal setters when it comes to finances. He is an accountant and always has spreadsheets and graphs going that I never fully understand and I am clueless about any type of math, so the only way for us to stay on the same page is to focus on goals. That way we both have something to work for and can comprehend our financial position in our own ways. Goals are very important to us. Great article!

  12. Having a goal is important. We realized that if we ever wanted to open a brewery, we had to get our bills paid down. So we’ve been working towards that and it’s amazing how much a little motivation helps!

    Today I’m linking up 10 winter salad recipes – most use ingredients that are very inexpensive this time of year.

    1. Sounds like you’re on your way. A goal always helps move you in the right direction!

  13. You are just such an inspiration in so many ways. I have definitely set (and reached) financial goals in the past — and brought my husband right along with me a couple of times too. 🙂 My first grown-up, big one, was paying off my student loan debt. I had the amount I wanted paid off done before I even took my first “real” job — I worked extra shifts in a restaurant concurrently while looking for other work and got it done! The next big one was paying down our debt (most of it my husband’s) and getting to the point where we no longer use credit cards. Now that we own a home and are relatively settled, we will have to discuss our next concrete goals, because we talk about a lot of things but aren’t working on anything specific at the moment (hard to set real goals when employment has changed a few times, we’ve moved several times AND purchased a home, and added two to our family, tee hee). But we’ll get there!

    1. Baby steps, baby steps. Sounds like you’re getting there, though. Thanks for your kind words!