5 02 2008

The New York Times ran an article today about how the shrinking credit market is changing the way America thinks.  I found great relief when I read this: 

With the number of jobs shrinking, housing prices falling and debt levels swelling, the same nation that pioneered the no-money-down mortgage suddenly confronts an unfamiliar imperative: more Americans must live within their means.”         

Living within our means seems like such a basic concept, but why do we have such a hard time actually doing this?  This is the issue that we all face everyday, particularly millennials.  We are a generation of instant gratification; between cell phones, text messaging, and e-mail, we get frustrated when we can’t get in contact with someone when we want to, and the same applies with buying stuff we want.  

There is nothing wrong with buying things you want, if you didn’t splurge on something occasionally you’d go crazy.  But my problem was that when I wanted something I wanted it at that moment and I couldn’t wait.

 I believe that our problem as a generation is that credit has always been available to us, and our parents (the baby boomers) were the kings and queens of credit.  Now with this so-called “credit crunch” we are being forced to learn how to live differently because the credit isn’t there.  We are seeing things for the first time that no one has had to deal with before and it may be the best thing that has ever happened to us.  We are learning to live within our means, a seemingly lost art in American pop culture, we are re-learning economics, and that markets cannot continue to rise forever.  Most importantly, as our parents retire, we are learning the ins and outs of retiring, the things to plan for, and the financial goals we need to set.

Goals aren’t some new phenomenon, I’ve set goals for everything from getting into college to getting my first job, and I have worked towards them and achieved them, but most recently financial goals have taken the forefront.  These are something that everyone should set for themselves, whether it be a goal to save up to buy a new toy (Mac mini is next for me), or a goal to save a certain percent of your income.  All of this is great, but there is one financial goal should come before all others, even before paying off debt.  That financial goal is to have an emergency fund.  Mary and I are saving right now so that we will have a decent emergency fund already set up when we move into our new house.

What is an emergency fund?  An emergency fund is a sizable amount of money (should be at minimum enough to get you through 3 months without a job) set aside and not to be touched in case of an emergency.  An emergency is defined as an unexpected expense that needs to be paid, for instance, your car breaks down, a medical emergency, you loose your job and need help with the bills while you look for a new job.  

I’ve always been told the best way to achieve your goals is to write them down.  The overarching financial goals that I have set will hopefully begin to snowball next year. Only when one is done, will I proceed to the next. My goals are:

  • Making sure we have enough in an emergency fund
  • Putting the matched amount into both of our 401k’s (we aren’t eligible until after our first year)
  • Maxing out a Roth IRA for both of us every year
  • Having a fund to open our own business.
  • Starting 529 plans for our future children (hopefully with our parents involved)
  • Saving to buy a rental property, then another…

I read an article in USAA’s quarterly member magazine last month that stated that if you are 25 years old, you need to save 10% of your income every year until retirement in order to have 80% income replacement at retirement.  With the goals that I have set above, I should be good on that 10%, at least for the next few years.  I hope that you all will take some time to think about your financial goals, and maybe even share them in the comments section. 

Note: In the comments section, Ron from The Wisdom Journal wrote one of the wisest (pun intended) quotes I’ve heard, and I want to share it.  He writesMost people today allow life to happen to them while those of us with goals make it happen every day.”  Thanks Ron!




    5 responses

    5 02 2008

    Just a thought for you. If you are doing those goals in order, and cannot fund the Roth just yet as you are working on the emergency fund, consider this – put the emergency money inside a Roth. Any money you deposit can be taken out tax and penalty free, and if you have no emergency, that money will kick start your retirement plan. Once you start the 401(k), your company may allow a loan, which may tide you over in case of a brief need for some money.

    6 02 2008

    Hey Daniel,

    Congratulations for even HAVING goals. Most people today allow life to happen to them while those of us with goals make it happen every day.

    My goal is to reduce my non-mortgage debt by half. It will be a huge stretch, but I think that my wife and I can do it.

    Thanks for sharing your goals.


    6 02 2008

    @ Joe, Thanks for the info on the Roth, I’ll definitely have to look into that. I do know that the penalties for a 401k loan can be pretty great

    @ Ron, that might be the best quote I’ve ever heard I’m going to put that in the body of the blog. Thanks!

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