We all have goals—but there are good money ones, and then there are the other kind.
Specifically, the ones that involve a lot of fantasizing about what life will be like when ...
In fact, research has shown that setting overly ambitious goals is a surefire path to not doing what you set out to.
Get started with a free financial assessment.
Get started with a free financial assessment.
Why? In short, we tend to get so busy imagining our fantastic future, we feel like it's already happened and may forget to actually take the steps that will help get us there.
So how do you know if your current goals are realistic—or too pie-in-the-sky? We asked three people to share what they're currently working toward, and enlisted David Blaylock, CFP® with LearnVest Planning Services, to help them figure out what steps they should take next.
See what you can learn by following in their footsteps.
I Want to Save for My Small Business
Andrew Orr, 32, army helicopter pilot, Indianapolis
His Goal: "I want to start a small business—either a restaurant or small storefront for handmade retail goods—this summer, but I don’t know if I have what it takes financially. I expect I'll need at least $60,000 to get it up and running."
Where He Is Now: “My current salary is $79,000, but it will drop to $35,000 in July, when I join the Indiana National Guard. The only debt I have is $78,000 left on my mortgage. I have about $40,000 in savings that I've been setting aside for entrepreneurial projects and about $50,000 in my retirement fund. I don’t have an emergency fund. In fact, I couldn't leave my job if I wanted to—I'm committed to the military for another few years.
"I've read, planned and talked to friends with their own businesses to get an idea of what it would require. I know I can utilize my savings to try and get a business off the ground, and I also have an opportunity for partnership and equal investment, if I want to share. Also, I call in some favors—my sister is an interior designer, my dad is a carpenter and I have close friends in the service industry. But I’ve read that a major cause of failure is a business being underfunded from the get-go, so I’m a little wary.”
What the CFP® Says: “The main thing whenever you’re considering funding a business is to make sure your expenses and debt are all taken care of. In Andrew’s case, he just has the mortgage, which is great. He doesn’t need to pay that off before starting his business, but he should make sure he has set aside emergency savings—at least six months of income—and not allow that to be invested into the business. So, if he wants to take $20,000 of his savings and use that for the emergency fund, and then use the rest to fund his business, I think that would be fine.
"As far as getting a partner, it depends on the circumstance, but it’s usually not a good idea to take on a partner just because you need or want the extra cash. Make sure there are other things they bring to you and to the business aside from the money. Taking on a partner just for funding seldom works out well.
"The final thing he (and other potential business owners) should do before starting is draw a line in the sand—decide how much money you’ll commit and then stick to it. Many business owners get into trouble when they start thinking that if they just put another $3,000 or $5,000 into the business, that will make it go. Before you know it, they could be $100,000 in debt and have a failing business. So decide on the number, give it your best and then walk away if it doesn’t work. And you shouldn't dip into your emergency savings!”
We Want to Pay Off Our Credit Card Debt
Ben, 31, field sales executive, and Meredith Chester*, 33, nurse, Atlanta
Their Goal: "We have $9,000 in credit card debt, which we want to pay off by March 2015. While Meredith was in nursing school, about five years ago, we used the credit card for some of our monthly living expenses, like groceries, gas and entertainment, then for a $700 surgery co-pay. Since then, the debt has just kept accumulating. We have a 20-month-old daughter and hope to be debt-free as we plan for her future, and hopefully for the future of another child."
Where They Are Now: “Our current annual household income is about $113,000, including Ben's sales bonuses. We have about $14,000 in student loan debt, a $31,000 car loan, $6,000 in emergency savings and $40,000 in retirement funds.
"We don’t really have a monthly budget, but we do know that we have trouble with spending extra money on things that we don't need, and we know that money could probably be going to pay off debt.”
What the CFP® Says: “Ben and Meredith are like a lot of couples who have enough money to live on but aren’t quite sure where it all goes. The good news is, their goal is easily doable. Their $9,000 in credit card debt is only about 10% of their income. It’s very likely they can find 10% of their discretionary income to trim but without a budget it’s difficult to figure that out.
"First things first, they should start tracking their expenses and find out exactly how much money they’re spending each month and where it’s going. They should write down what their fixed expenses and variable expenses are, so that they know how much they have left over to commit to paying off their credit card debt each month.
"It wouldn’t surprise me at all if they found additional money to put toward other goals, whether it’s increasing their emergency savings or putting more toward retirement. But their priorities are in the right order—paying off the credit card is number one.
"I would also recommend building up their Emergency Savings since it looks like they probably only have about one month of income set aside and they have a child. Their goal should be six months' of net income for the highest income earner. Accumulating Emergency Savings and eliminating credit card debt for good go hand-in-hand because without adequate savings they are one financial curveball away from falling back into credit card debt.
"If they want to get really aggressive, they could downgrade their car—a $31,000 car loan seems substantial with a $113,000 salary.
"Finally, I would recommend that Ben’s bonus goes directly toward credit card debt every time he gets one. Once that’s paid off, it can go toward other savings goals.”
*Names have been changed.
I Want to Save for a House ... and Pay Off My Student Loans
Erin Steele, 26, microbiologist analyst, Elizabeth City, N.C.
Her Goals: "In the next two or three years, I'd like to save up $15,000 to $20,000 for a down payment on a house. In the next five years, I'd really love to pay off my $68,000 of student loans."
Where She Is Now: “I’m currently making about $30,000 a year as a microbiologist analyst. I have zero credit card debt, but I do have $600 in unpaid medical bills from a surgery my insurance didn't cover, plus the student loans, which require $680 a month.
“The scariest part of Erin's financial status is that she has no emergency savings to speak of—$150 is really thin."
"Each month I pay $550 in rent and about $580 in other bills—food and gas is about $260, and I put $50 from every paycheck toward my medical bills. I don’t have a retirement fund but would like to start saving for it. I have about $150 in an emergency savings account in case, God forbid, something happens to my car—it's the only way I can get to work and it makes all sorts of funny noises, but I can't afford to get it looked at right now.
"It's a 2004 Chevy Cavalier I bought for $13,000 when I moved to North Carolina six and a half years ago for school. I put a $6,000 down payment on it, and then worked four jobs while I was in school to pay off the rest of my tuition (I also took some college summer courses for $3,000) and car debt, so I’m no stranger to doing whatever it takes to achieve my goals.”
What the CFP® Says: “The scariest part of Erin's financial status is that she has no emergency savings to speak of—$150 is really thin. She should focus on saving at least $1,750, or one month of net income, before she does anything else. Eventually, she should build up to six months’ income.
"Based on this rough estimate and expenses, I don’t see a lot of additional money to save at this point. It would come down to her having additional income before she can pay down her student loans rapidly or start saving for a house. Based on her past, she’s obviously not adverse to having multiple jobs and another $15,000 or $20,000 would go a long way to help get toward these goals.”
LearnVest Planning Services is a registered investment adviser and subsidiary of LearnVest, Inc. that provides financial plans for its clients. Information shown is for illustrative purposes only and is not intended as investment, legal or tax planning advice. Please consult a financial adviser, attorney or tax specialist for advice specific to your financial situation. The people interviewed in this piece are neither clients, employees nor affiliates of LearnVest Planning Services. LearnVest Planning Services and any third-parties listed, discussed, identified or otherwise appearing herein are separate and unaffiliated and are not responsible for each other’s products, services or policies.