Your Financial Check-Up (Week 3): Achieve Your Most Important Financial Life Goals

It is week 3 of the Financial Check-Up Challenge and I’ve heard from readers who are participating in the challenge. I’ve also heard from others who basically told me, “I get it Scott. It’s important to check in occasionally to assess our financial health but LIFE HAPPENED and I didn’t get a chance.”

If you are late to the game or just not sure where to get started with your financial check-up, here is a quick summary. In week one, we focused on goal-setting and getting organized. Week two shifted our attention to analyzing the cash flow situation and telling our money where to go with a personal spending plan. Without concrete goals and a game plan for spending that gets us closer to turning a goal into a reality, we are just flying by the seat of our pants, a rudderless ship, or a train off its tracks (insert your own overused metaphor here).

You get the idea right? Create a financial plan and find the money to fund these goals or re-prioritize your spending to free up a few extra dollars. Next comes the fun part…actually achieving our goals! This leads us to this week’s Financial Check-Up Challenge activity: Achieving Your Most Important Financial Life Goals.

They say that anything worth having in life usually takes time and our financial goals often take time to achieve. Think about your current “top three” financial life goals and assess the progress that you are making to turn those goals into a reality as quickly as possible. This Saving for Goals Calculator can be helpful as you SMARTify your plan. Here is a list of some common financial goals along with some suggested benchmarks to help you track your progress:

Create an emergency savings fund. It’s easy to want to jump ahead and fund other goals but we really must protect ourselves from life’s unknowns by maintaining an emergency savings fund first. If you are trying to pay down problematic high interest debt, start small with a core emergency fund of around $500 to $2,000 in an account separate from your day-to-day checking. After high interest consumer debt has been zapped out of your life for good, you can shift the focus to keeping between 3 to 12 months of basic living expenses in an emergency savings fund.

Emergency Savings Calculator

Eliminate high interest consumer debt. It’s no secret that debt can create financial stress and delay reaching important financial goals (see Slaying the Three-Headed Debt Monster). If you are looking for some simple yet effective strategies to eliminate debt from your life, you can start by completing a debt inventory or use account aggregation tools such as Mint to assess your total financial situation (see Financial Check-Up Week 1).

Next, review your personal spending plan (see Week 2) and examine how you can get out of debt sooner. Attack your debt with the highest interest with extra payments and track your progress using the Debt Blaster calculator or apps such as Ready For Zero. Consider seeking professional guidance or credit counseling if the debt appears too difficult to manage on your own. Most importantly, have a written plan and always stay focused on the end result of becoming debt-free (see 5 Steps to Getting (and Staying) Out of Debt).

Establish a retirement plan with confidence. The biggest issue when it comes to saving for retirement is achieving a true understanding of whether or not we are actually contributing enough to achieve financial independence during our retirement years. Estimating your retirement outlook is a best practice financial planning activity and should be done at least once a year.

Not sure how much income you will need to maintain a desired retirement lifestyle? Studies suggest that retirees usually require about 70-90% of their pre-retirement income to live the same comfortable lifestyle so that’s a good place to start when using a simple retirement calculator tool to track your progress. Be sure to use multiple calculators to account for different assumptions and methodology. Some calculators you can use include this basic retirement plan estimator, Ballpark E$timate, BasicESPlanner (more advanced), or this retirement calculator.

Help your children go to college with minimal debt. The saving for college goal comes with a caveat. It should only be pursued once your own retirement plan is on the right track. It is not wise to sacrifice your own retirement to fund a child’s college education. Hopefully you will be in position to save for multiple goals in your financial plan. Just keep in mind that if you are not in a good position to save for college, there are other ways to avoid or reduce your child’s education-related debt.

5 Steps to Education Planning

Buy a home. This is a common financial goal that has traditionally been a core element of the American Dream. During the housing crisis, home ownership was more like a nightmare for many families but that shouldn’t scare you away from pursuing this goal. It should provide some guidance on the best approach to buying a home.

Sometimes the most important home buying lessons are the simplest. Check your credit score early in the process. Don’t buy more house than you can afford. Maintain an emergency savings fund (and don’t empty this account for your down payment). Be sure to work the other housing related costs into your spending plan.

5 Steps to Buying a Home

Rent vs. Buy: Seven Factors to Consider Before Buying a Home

How Much Should You Put Down on a Home?

Pay off student loans or a mortgage. Other financial goals tend to come ahead of paying down student loan or mortgage debt. Building up emergency savings, eliminating high interest consumer debt, and saving at least 10-15% of gross income for retirement are essential financial actions to take. Once that is in place, the “good debt” vs. “bad debt” discussion usually comes up as part of this decision making process of saving vs. investing vs. paying off debt.

Student loans and mortgages are commonly lower cost forms of debt and the interest is typically tax-deductible. Deciding if it makes sense to apply extra funds to eliminating debt usually depends on your views on whether your money would likely work harder for you being invested. As a general rule, if the interest rate is 5-7%, you can go either way depending on how comfortable you are with debt and how aggressive an investor you are. If the interest rate on your student loan or mortgage debt is below 5%, you’re probably better off investing any extra savings unless you are a very conservative investor.

The Do’s and Don’ts of Student Loan Repayments

Are You Afraid of Your Student Loan Debt?

Student Loan Debt? There’s an App For That

Should You Save More For Retirement or Payoff Your Mortgage Early?

In summary, this week’s Financial Check-Up tips include a bunch of options but I encourage you to avoid the temptation to look at all of these goals listed above as insurmountable. If you try to accomplish them all at once, they may very well become impossible to attain. Use your financial plan to help prioritize the most important financial life goals to focus on. (Remember to focus on no more than three).

Then take action to do everything you can to accomplish those goals within your desired time frame. Finally, try to make this all important implementation phase as “automatic” as possible. Otherwise, it is very easy to say that you’ll “save more later” or “deal with that debt later” in life and we all know that plan never seems to work out!

 

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