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sufficient financial goals??
Old 07-05-2007, 03:54 PM   #1
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sufficient financial goals??

What would you guys consider sufficient financial goals if, let's say, one just happend to start working on saving?
What would be your first goal? second? third and beyond?
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Old 07-05-2007, 05:02 PM   #2
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That's tough to answer without knowing more specifics, such as age, debt (if any; how much and what type), and so on.

In general, however, I'd put my priorities in the following order:

(1) retirement (if there are matching funds from the employer available, contribute enough to get that match; never leave free money on the table)

(2) emergency fund of about $500 or so

(3) unsecured debt reduction

(4) emergency fund at comfort level (in my case, this is about 6 months of living expenses; YMMV)

(5) max out retirement savings (can be built concurrently with #4, IMO)

I'll be interested to see how others' views differ.
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Old 07-05-2007, 05:59 PM   #3
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I think Peggy's list is pretty good. I'd also emphasize the importance of controlling costs. Review expenditures with a sharp pencil. Reducing the monthly outflow leaves that much more available for investment.

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Old 07-05-2007, 06:36 PM   #4
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I like Peggy's list.

Mine would be:

1. Contribute enough to 401(k) to get full match. If company doesn't match at all, at least start contributing to a Roth IRA at some level ($20 a month if you can do it)

2. Spending diary (write down every single thing you spend money on for a month)

3. Write down all debts with the highest pct first.

4. Combine #2 and #3 into a budget guide. Determine where you're willing to cut back in order to pay down debts. Our experience has been that you naturally curtail spending when you realize you're not getting that much joy for your money.

5. Pay down that cc debt, if any! Credit card breathing room can be your emergency fund if you really need it to be. Plus, your total dollar committment will work way harder for you if you're paying off a balance with a 15% interest rate than if you're putting your money in a savings account.

6. Emergency fund equal to 3-6 months of living expenses (or projected living expenses if you had to cut way back for a while). 3 months if you're in a very safe job, think you're easily employable, or just like to live on the edge.

7. Revisit the budget. Know your future expenditures. Your goal is to never touch your credit cards or e-savings unless something truly horrible happens. For example, if you know you're going to buy a house, or a car, or your car needs repairs, or you're going on a trip in six months, then write down when those expenses are and how much they're going to cost you. Then, figure out how much you'd need to set aside per month to reach your goal.

8. Max out every tax-advantaged account you can... 401k, Roth, etc.

9. Remind yourself that it's a series of trade-offs. At one extreme, you live for the moment and completely ignore retirement. At the other extreme, you live like a miser now and retire earlier than all of your peers. Somewhere in the middle, you balance spending on things that truly make a difference and save for goals you truly care about.
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Old 07-05-2007, 11:24 PM   #5
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Quote:
Originally Posted by peggy View Post
That's tough to answer without knowing more specifics, such as age, debt (if any; how much and what type), and so on.

In general, however, I'd put my priorities in the following order:

(1) retirement (if there are matching funds from the employer available, contribute enough to get that match; never leave free money on the table)

(2) emergency fund of about $500 or so

(3) unsecured debt reduction

(4) emergency fund at comfort level (in my case, this is about 6 months of living expenses; YMMV)

(5) max out retirement savings (can be built concurrently with #4, IMO)

I'll be interested to see how others' views differ.
I like Peggy's list, although for me, I'd put 'unsecured debt reduction' as #1, and I'd increase 'emergency fund of about $500 or so' to $1k...maybe $2k.

As one, who in years past, had a massive amount of CC debt (50k+), paying down the unsecured debt first, was the best for me. With my (then) average CC interest rate around 13%, it didn't make a lot of sense to me to be making investments that would be returning equal or less than that. Granted, I lost out on about 2 years of investing, but even if I had been putting money away I really wouldn't have been getting much, if any return.....it most likely would have been a negative figure. (amount of return on money added to investment for those 2 years, minus CC interest paid = negative $) (IMHO)

(BTW, the huge CC debt is a loooong...and stupid....story. Don't ask! I did get it ALL paid off in about 2 years though! )

Also, I do not, and will not, carry any balance on a CC. Anything charged gets paid at the end of the statement period. And it's all on a one CC that is a rewards card!
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Old 07-06-2007, 12:11 AM   #6
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1. No debt

2. The fridge just exploded and busted a pipe and flooded the kitchen fund

3. Sacrifice sacrifice sacrifice

4. You can NEVER save too much before RE.
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Old 07-06-2007, 12:04 PM   #7
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I like Webzter’s list – It is all about controlling what you spend and then putting as much as you can away. The earlier you start this process the better you are.

I would also like to throw in the ring the importance of career planning. The more you make, the more you can save. Don’t get stuck in a rut, you should spend a lot of time thinking about where you want to be professionally when you retire. So your salary can increase even though your lifestyle doesn’t have to.
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Old 07-06-2007, 02:19 PM   #8
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Those are all great lists guys but I guess I was looking for more of a specific straight to the point fiscal goal.

I guess an example would be something like what I have made for myself:
1) no unsecured debt

2) 6 months gross pay saved in an easy access account

3) Max out IRA(I don't have access to a 401k in my field; 11.5% of my pay goes towards a Taft-Hartley Fund as part of a pension which is paid by the company and not out of our pocket. This BTW, goes up to 12% next year and 12.5% the year after)

4) Invest 20% of my take home pay (includes IRA and other funds/stock)

5) Enough invested where returns equal or outpace contributions

How does that sound? I would know what to do after #5 as that would happen at around $80k invested, based on my wages and a 10% return(hope my figurin is aight )

The irony of this is I don't have any of these as of right now.
1)I have around $9k of CC debt leftover from the $22k I had a couple years ago
2)I got one month saved. I guess its better than nothing
3)By the end of the year, I will have maxed out IRA contributions. Payments are made every month automatically.
4)I'm up to 12% of my take home pay going towards investments. The day that credit gets paid off I'll actually accomplish two goals at once: no unsecured debt and 20% of my take home being invested.
5)I know will take a few years....
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Old 07-07-2007, 07:38 AM   #9
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Personally, I think emergency funds should always be the number one priority. Who cares if your CC debt is 3k instead of 9k if you lose your job and have to pay rent? Having the debt lower won't keep you fed. But having an emergency fund would.

All the books you read on getting started agree on one point - Pay Yourself First.

Notice they don't say "Pay the credit card companies first, then yourself".

If something happens (an emergency!), and you need cash, where would you get it? You'd charge right back on the CCs I'd imagine. It's kinda self defeating to work so hard and then have that negative reinforcement. Contrast this with being able to tap your e-fund, which positively enforces your financial discipline.
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Old 07-07-2007, 01:58 PM   #10
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Here's my list:

1. Get a full time job
2. $1,000 emergency fund.
3. Max out any 401(k) match.
4. Pay off any debt at rates > 7%
5. Life insurance to support my kids through college
6. Max out any ESPP.
7. 5 months expenses in emergency fund.
8. Buy a house.
9. Finish post-divorce financial tasks.
10. Save for retirement at 65
11. Save for my portion of my 1st child's college.
12. Save for my portion of my 2nd child's college.
13. Save for my portion of my 3rd child's college.
14. Save for retirement at 60.
15. Save for all of my 1st child's college.
16. Save for all of my 2nd child's college.
17. Save for all of my 3rd child's college.
18. Save for retirement at 55.
19. Pay off my mortgage.

Right now all of the above are accomplished or on target except #9, #15-#17, and #19.

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Old 07-09-2007, 10:40 AM   #11
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Ditto what NinjaPigeon said... start working on that emergency fund. If the fit hits the shan, you want something there to get you by. If nothing happens, then eventually you can knock out that CC debt with a single pmt.
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Old 07-09-2007, 05:46 PM   #12
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I don’t think you need to save an emergency fund when you have CC card debt with interest piling up. If for some reason you lose your job (which is probably unlikely since you are an engineer) you can always put some more on your credit cards until you find a new job.

However I think the list should be like this,
  • contribute Max to an Roth IRA
  • Pay off Unsecure Debt
  • Emergency Fund ( This is really dependant on your job and life situation: If you might lose your job, or you have a family to take care of this might be a little more important- if not you can take some risk here.)
  • Invest 20% of my take home pay (includes IRA and other funds/stock)
  • Invest half of all other pay raises
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Old 07-09-2007, 06:02 PM   #13
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Ok, I've been thinking about this a little more. I think we're forgetting one important aspect.

If you have a family:

1. Make sure you have enough life insurance! Compare term life with buying up at your employer (if available); consider both if needed. You don't need whole life, term life is perfectly reasonable.

If you're single:

1. Find someone rich to marry! Or, barring that, look to what you can cut now. It's a lot easier to convince yourself to live on nothing than it is to convince a spouse who might not be on board (at least at first). Consider a roommate.

And, one quick thought on student loans...

Don't pay off your student loans. These probably have very reasonable interest rates. If you fall under the salary cap then you can deduct the interest on your taxes. Lastly, you can defer the payments if you end up without a job.
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Old 07-11-2007, 04:01 PM   #14
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1. Contribute enough to get full 401k match in aggressive funds. (Free money / long term growth)
2. Save three months living expenses (safety net)
3. Max out Roth IRA (taxes are probably going to be higher when you retire).
4. Save 20% down payment and buy home.
5. Save six months living expenses (need bigger safety net as homeowner)
6. Max out 401k contributions in aggressive funds.
7. Save enough cash for a nice new car when current one dies (reward yourself).
8. Pay off mortgage. (better return than a CD and balances aggressive retirement funds)
9. Fund children’s 529 plans with 50% of the expected college expenses. (incase they drop out)
10. Redirect car/house/college investment dollars to low cost index funds to cover remaining college expenses, retirement, vacation home, whatever...
11. Save $X million dollars by age Y so you can retire early if you feel like it.

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Old 07-14-2007, 02:01 AM   #15
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Originally Posted by bldgengineer View Post
What would you guys consider sufficient financial goals if, let's say, one just happend to start working on saving?
What would be your first goal? second? third and beyond?

The original question from the OP is above.

For the sake of our general audience my comments will be a bit more casual than some of the others.

"What would you consider sufficient financial goals?...(re saving and then what?)

I tell my kids and grandkids the same thing when they ask me how I was able to save enough to retire before age 55. My answer boils down to this:

"Save as much as you can without hurting your family or youself and put it into a Money Market fund as you save it. Once you have enough to buy 100 shares of a stock or better yet an index fund at Vanguard then do so. Repeat often."

Goal number 1 should be an emergency fund to tuck away at least 3 months of actual living expenses that cannot go unpaid (mortgage, power bill, water bill, phone bill, food, insurance, car payment on PRIMARY car and perhaps some other stuff that is essential. Don't include the cable or dish TV or the top of the line mobile phone plans. These can be cut back a lot and still have essential services.

Goal number 2 should be to continue to save even when you meet your 3 month goal but start moving a portion of these savings into a fund of your choice where you can use it as a collector of money that is easily moved to other accounts without commission or fees. These are usually Money Market accounts. Continue to fund the emergency account until you are up to at least 6 months of living expenses. Then take the extra funds in the MM account and buy additional index funds in different market sectors.

Goal 3 is to funnel all raises, bonuses etc. into the MM fund to use as seed money for other assets. Buy wider variety of funds including some intermediate bond funds, international funds, Pacific Rim funds, Europe funds, and even some "tree hugger" funds if that suits your taste. The key is to keep your money flowing into index funds with low expenses and to keep them in different sectors. Repeat as desired.

Goal 4 may be to see how much you want to spend each year in retirement and then do the calculations on what it will take in a nest egg to get you there and when that might happen. FIRECalc is a good tool for this exercise. Once you have your "magic number" you can then see how long it might take to get there. If you can save more it will shorten the time but do so with full knowledge and consent of all family member so there will be no surprizes when the answer to taking that Alaska cruise is now NO.

Goal 5. Once you have enough plus a health margin in hour now diversified funds. Leave your job and live on your funds. That is a very tough step for many to take. No longer getting a paycheck takes some getting used to and can be a shock for some. Also, you will not be saving anymore so the concept of reversing the cash flow from you to the MM will now change.

Goal 6. Live long and prospher. Do those things you have always wanted to do but never had the time. Because now you have the money AND can take the time to do them. Don't delay too long or health issues might slow thing down or even prevent them from happening.

I tell my kids............" the worst thing I can think of having to encounter on my death bed is the fellings of remorse at not doing the things I wanted to do because I ran out of time. " Having lived through the death of my wife so soon into her ER only gave me more resolve in my desire to do all I can before I can't.

I don't want to be dying and think...."if only if I had done..........."

Do it now.
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Old 07-14-2007, 03:53 AM   #16
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Steve,
Nicely layout steps toward ER.
I am at Goal 5, hoping to Goal 6 in 4 years.

Spanky
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Old 07-15-2007, 08:10 AM   #17
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Nicely stated, SteveR.

I've told anyone who will listen to save at least 10% of any paycheck. That's a minimum amount to save/invest. I really like your #3. If you were getting along with the raise, then save it. Compounding interest is a miracle.

I shorten Rule#6 to "outlive the bast@rds." Makes me feel better.
Carpe Diem.
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Old 07-16-2007, 02:32 PM   #18
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Thanks a lot SteveR. That is probably one of the better, well thought out list of goals I have seen so far.
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