Will Your Reach Your Goal?

$MART TALK

Money Smarts for the Real World

May 13, 2011

Where are You Headed?

You would never embark on a road trip without a map and a sense of where you were headed, how much money you had to get you where you were going, and the timeframe you had to work within. Yet, many people do just that with their financial goals. Broad goals like retirement or college are a starting point for you to dig deeper. To clarify your goals

and to make them specific is the only way to measure if you are on track or not. How many years do you have until retirement or college? How much money will you need saved? How much will you need to invest between now and then to have any hope of reaching your goal? What kind of investment return will you need to average? It is easy to put these questions off -- but doing so just wastes time (which we all know is money). Where can you start? This issue will give you some steps to take to really clarify what it is you want and what it will take to get it. I hope you're up for the task, because the reward will be worth it!

Setting Your Retirement Goal

When you're saving toward a long-term goal, such as retirement, and you're in "investment stock-pile mode", there is a tendency to take comfort that you're doing the right thing by investing as much as you can. But, if you're not really sure how much you will need to reach your goal, it's hard to know if you're efforts - as good as they are - will get the job done. Getting a handle on what you will realistically need for retirement - whether it is 3 years away or 30 years away - is an important step toward actually reaching your goal. It makes your goal quantifiable, and enables you to track your progress and adjust any variables as your situation changes. Click here to read more.

Teaching Your Teen Financial Strength

Teens crave independence and want to be taken seriously; and, as parents we have to find ways that they can assume more responsibility in a way they can handle. Money just may be the answer.

While we make sure our kids learn reading, writing and arithmetic, there is something noticeably absent from their school education, and that is money smarts. Unfortunately, your teen may be able to go through life with little understanding of geometry but no one goes through life without having to deal with money. How your kids learn to manage it may be one of the greatest indicators of how successful and responsible they will be as adults. It's never too soon to get started, and while they may groan at first, your teens will start to quickly realize the power that comes from making choices on their own, and they will become more self-confident in the process. Here are some ways you can help your teen work towards financial independence:

Adult conversations. Teens love to "listen in" and partake in adult conversations. Unfortunately, our adult response can be "This doesn't concern you," or "I was talking to your father." We try and shield our kids from all the responsibilities they will some day face, but all we are doing is delaying their growth and progress. Have open conversations about finances in front of your kids. Take the time to discuss the decisions you are facing, whether it is buying a new car, refinancing your mortgage, or funding a family vacation. Let them see the way you and your husband research and sort through your options to come up with the best fit. Walk them through the math, as you analyze which outcome is best and then show them how you factor in the "quality of life" issues, such as saving time or convenience to make your final decision. Find out what they think and why.
Basic banking. If your kids don't have bank accounts of their own, set out with them and research which banks offer the best account for their needs. Show them that the interest rate earned on the account is only one factor to consider; the fees the bank charges, and the convenience (be it location, operating hours, or ATM availability) also will determine where to bank. After you do this research you may even find yourself switching your bank account. Have them open an account and show them how to keep track of checks, deposits and withdrawals in the transaction register. Also show them how to balance their checkbook. Click here to read more.

$mart Question

Every month I promise myself that I'm going to put away a little more money into savings, and every month I can't seem to get ahead. Any suggestions for me?

What I'm about to tell you is the secret to saving, and it is simple. Just do it. Do it before you pay any bill that you owe, and force yourself to work around that every month. Start off slowly, if you're not sure what you can realistically save.

Make a list of all the expenses you have that are fixed (rent/mortgage, insurance, phone service, cable, etc.), then keep track of every dime you spend for two weeks (you will double these figures for a monthly amount). Whatever amount you have put towards savings, bump up by at least $20 right up front. Using an interactive budget worksheet that calculates and re-calculates as you adjust your figures), plug in your data. (I can provide you with a budget, email me for that.) Then deduct all the bills you must pay, the left over cash is what you have to spend on groceries, household items, clothing, and goodies. How do the numbers match up with what you have been spending? Now that you are paying attention to your spending habits, is there anything that surprises you? Is there an area that you feel you can and should reduce what you are spending? Regarding your fixed expenses, can you negotiate better rates? Remember, reduce a fixed expense and that can really free up your monthly cash to put towards savings.

As you dig deeper into the budget, make sure the items you "want" take a back seat to what your needs are (savings and bills). You'll be surprised at how you manage to make the money stretch, when you have already put your savings aside. You will also think before you spend now that you have a written blueprint of where you want your money to go.

Commit to put at least a portion of any bonuses, raises, or windfalls towards beefing up your monthly savings. The goal would be to save at least 10% of your income, striving for 20% or more in the future. Don't get overwhelmed by these percentages, they would include all savings (IRAs, contributions to employer-sponsored retirement plans, college savings, etc.). You can do this, but only you can make it a priority. Set up an automatic savings plan /automatic investment plan, which debits your bank account every month so that there are no checks to write or mail out, it is a fast and painless way to save. Make yourself the priority and you'll be surprised at just how fast your savings will grow.

Every issue we will answer a question from one of our readers. Submit your question here.

In This Issue

Setting Your Retirement Goal

Finding Financial Strength

$mart Question

$mart Move

$mart Move:

Write Your Blueprint for Success

Writing down clear and specific goals can dramatically improve your chances of success. A study conducted in 1979 with Harvard MBA graduates showed that 84% had no goals outlined, 13% had goals that were not written down, and only 3% had written down their goals. After 10 years, the 13% with unwritten goals were earning, on average, twice that of the 84% who had not had any specific goals. But the earning power of the 3% with written goals was most impressive. On average, that 3% of graduates earned 10 times that of the rest of the 97% of graduates. Give your goals more than just some thought -- write them down with a timeline attached and keep track of where you are. You'll be surprised how much easier it may be to reach your dreams once you clarify them and measure them.

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