Setting Goals

Talking Money: Everything You Need to Know about Your Finances and Your Future
by Jean Chatzky

(Page 2 of 4)

Setting Goals

So here we are again, back to the question I asked at the top of the chapter: What do you want from your money? The difference between what you have today and what you'll have months or years from now can be nothing-or it can be very substantial. If you'd like to see your assets grow, it helps immeasurably to have a road map, to set you on course. You can use it to become clear on your priorities, so that soon you'll know which investment accounts to fund, which credit cards to pay down, what you're saving for. Think of this planning exercise as making a financial to-do list-only this time, instead of a to-do list for the day, you'll be making one for the next couple of years (or if you're really clear, maybe the next couple of decades).

The Wish List

How do you start? Diving in is the only way. Pick up a pencil and a piece of paper, pull out your Palm (or other PDA) or take a seat at your computer, and let's make a list, a financial wish list. This is a time for thinking really big. In a few minutes, we'll attach numbers to the items on your list and decide what you can accomplish in the short term and what's a fantasy. But if you restrict yourself from the outset, chances are you're missing something that's important to you. So go ahead and dream a little.

I have no idea what's in your head (sorry) but here are some possibilities to get you started:

• I want to buy a home.
• I want to go back to school.
• I want to start saving for college for my kids.
• I want to get rid of my credit card debt.
• I want to buy a car.
• I want to retire in Phoenix.
• I want a time-share in Orlando.

Throughout this book, you'll find lists of questions: Five Questions to Ask a Financial Planner, Five Questions to Ask Your Life Insurance Company, Five Questions to Ask Before Buying a Stock. They're designed to help you figure out whether you're buying the right products, getting the best deal, working with an up-to-date (and on-the-level) professional. Perhaps no list of Five Questions, though, is more important than this one:

Five Questions to Ask Yourself (and/or Your Partner) About Your Goals:

1. What do I want to accomplish financially this year? Don't censor your answers. They can be anything from I want to spend winter break in Boca to I want to have $1,000 in my savings account to I want to pick better stocks. All are acceptable. Just be sure to list accomplishments that are possible to achieve in the next twelve months. Red Flag! Don't allow yourself to be wishy-washy. Specificity is key. Otherwise, a year from now you'll still be starting from scratch.

2. What do I want to accomplish with my money in the next ten years? Again, be very detailed. Perhaps you envision having $30,000 in your IRA or 401(k) by that time. Perhaps you can see yourself having zero in credit card debt. Or maybe you'd like to be working for a company that grants stock options. Knowing what you're striving for makes the path toward those goals easier to find-and therefore easier to follow.

3. What do I want to accomplish with my money far off in the future? These are your stretch goals. They may include retirement at age fifty-five, a second career in the Peace Corps, or the ability to leave your kids a sizable inheritance. One of my colleagues at Talking Goals Money magazine, Jason Zweig, says his long-term investment time horizon is 100 years. No, he's not expecting to break the Guinness Book records for longevity, but he has children and he's planning to leave certain investments to them.

4. Am I willing to begin? There is only one thing standing in the way of achieving your goals-at the very least your short-term ones-and that's you. Are you willing to do it? Perhaps you decided you wanted to save an extra $1,000 this year. Are you willing to cut your spending by the $20 a week it'll take to accomplish that? Or to take on a freelance project or some overtime? Are you ready to do it today? When it comes to your money, procrastination can be a killer.

5. Do I know how to get started? Don't worry, that's what this book is here to teach you. But the key to beginning is to break that goal down into smaller chunks that you can wrap your hands around. Take that $1,000 example again. As one sum, it sounds like a lot of money. But when you realize saving it on a weekly basis only means socking away a $20 bill, it's manageable. If you want to buy a house five years from now and need to come up with a down payment, you're working with larger sums of money-but still they can be broken down into manageable parts. Put away $50 a month into Treasury securities at a 6 percent return, and you'll have $3,342 in five years after taxes (assuming a 28 percent tax bracket). If that's not enough, run the numbers for a $100 contribution (you'll have $6,684) and a $150 contribution ($10,026) and a $200 contribution ($13,368). That $200 may sound like a lot in one chunk but if you think of it as $50 a week it's much more reasonable.

As you go through this exercise, remember that it's okay if your answers are all over the map. Your first time through these questions should truly be a brain dump. Then go back over the items and organize them in terms of priorities. Which is more important to you, the home or the car? If you get rid of your credit card debt today, do you think you can stay out of debt tomorrow? If so, you should probably tackle your credit cards first and start stashing as much as possible into the retirement fund second. Putting all your money muscle behind a single financial task will often provide the biggest payoff (in the credit card case, for example, it's often impossible to beat the return you get by paying off an 18 percent card by investing your money another way). But there will be times when you can work on multiple goals at once. If your company has a tuition reimbursement program, for example, you can go back to school while you're paying off your Visa.

Note: It's fine to focus much of your energy on the expenses of tomorrow such as retirement and college, but you also need to have a life today. Ross Levin, a Minneapolis financial planner, had a client in his office who wanted to move his family to a neighborhood with better schools. But he was hesitant to do it now. Instead he wanted to wait three years, thinking he could use the time to rack up a re-ally substantial balance in his retirement accounts before he started pouring money into a new residence. Levin talked him into reconsidering: "The reality is you want your kids growing up in this neighborhood, in these schools, with these playmates," he argued. "The impact of moving now on your family will be much more dramatic than the additional money you're putting away for later."

His point is an important one. There is such a thing as too much delayed gratification. Saving so much today that you're living unhappily isn't worth a few rounds of golf or even a few expensive vacations down the road. You have to find the middle ground. The key is to be as intentional about your spending as you are about your saving. When you plan for a kitchen renovation or a trip to Europe for your twentieth anniversary-just as you would plan to make your 401(k) contributions-then they don't play havoc with your future. You decide how much you'll need to make them hap-pen, put the money aside, spend it, and move on to the next item on your list. Which brings us to...

Copyright © 2001 by Jean Sherman Chatzky. All rights reserved.

About the Author

Known to millions of readers and tv viewers, Jean Chatzky is the financial editor of NBC's Today show and also appears on CNBC. She is a regular columnist for Time, Money, and USA Weekend magazines. She is also the author of Pay It Down!