This is so stereotypical of me to list goals for the new year.
My friend Jamie has always thought that New Year’s Eve seems like an artificial holiday. Changing numbers is kind-of a random thing to celebrate, but on the upside, the simple turning of the calendar does inspire hope and new plans.
As I’ve talked about in Tons of People Make this Mistake about Money: Don’t Be One of Them at Babble and here at This One Thing Will Make You Save Money and Achieve Your Dreams, writing down goals is an extremely powerful way to make change in your life.
While reading the amazing Wicked Success is Inside Every Woman by Vickie Milazzo, I was reminded of the Harvard Business School study where people who write down their goals were found to earn 10 times more than those who don’t. Even though all of my goals don’t have to do with making money, defining dreams and then writing them down is an almost surefire way of making them come true.
I’ve found that publicly announcing goals makes things happen even faster — whether you do it over coffee with a best friend or blast it on Facebook. By sharing my goals, I hope to open my life to you and to invite you to join me in pursuing your dreams and goals.
If you would like to do this exercise with me, I want you to know that the comments section of these posts are a safe place for you to list and announce your goals. I will respond to every comment with an encouraging message and a personalized, “Whoopee!”
So here I go with my first goal:
Goal #1 | Boring Yet Hot: Hit Retirement Hard
This goal gets the complicated prize for the most snoozy yet the most urgent. Thinking that everything is going to be all right is nice and optimistic, but good things usually only come true if you do something about them.
Life is uncertain. Even if Social Security checks exist 30 years from now, I am confident that they will not be enough to provide a comfortable life for me and my children.
I interviewed self-made millionaire and radio talk show host Dani Johnson recently about how she manages big-time success with a big family. Over and over in her book First Steps to Wealth, Dani says 98% of the population will end up dead or dead-broke by age 65. Basically, only 2% of the population will be financially successful. I want to be in that 2%, and I don’t think it happens by wishful thinking. And one of the keys, Dani says, is focus.
Our Problem
Enrico’s and my income has been so low since we got married, since most of the time I chose to not work and live frugally so I could raise my kids full-time. Enrico was also going through career re-training, so his income was not high. Even though I wouldn’t change a thing about our choices, one of the results is that we have very little in retirement. And that’s scary, especially considering we are both in our early 40s.
What We Need to Do
The past 11 years have been tight, but we managed to stay out of debt and we were able to successfully buy our first house this year. Now we must prioritize retirement as our next savings goal. Even though it’s tempting to spend more on improving the house — that’s the thorn in the side of my next goal — we must prioritize our long-term future.
We must also continue to enjoy life in a frugal way. We cannot let our hair down and go wild with the clothes, chandeliers, cars, or vacations. But that’s OK. We don’t deprive ourselves — we practice conscious spending — so we should be able to keep up our frugal ways and still feel like we are moving up.
What We’ve Done So Far
Reverse Budgeting (or Deduct the Max)
Enrico asked at his work the maximum amount we could deduct from his paycheck for retirement. We then increased our deduction from 10% (current) to 15% (the maximum allowed).
Automatic deductions from pay is an awesome way to save: you never see the money and you eliminate monthly decision-making. This idea is called reverse budgeting and it is great for people who don’t want to fiddle with allocating certain amounts to spending categories. Just sock away as much as you can, then let the rest work itself out. The Minimalist Mom Rachel Jonat, who I wrote about here, used reverse budgeting to get $82,000 out of debt.
Invest Even More
We called our bank and asked about Roth IRAs, a retirement plan where you can contribute up to $5,000 per year per person (if you make less than $179K). We decided that we could comfortably take $10,000 from our savings and still have enough for emergencies (a good rainy day fund contains 6 months of income).
Tip: I discovered after a breathless call to our bank on December 23 that the deadline for contributing to Roth IRAs is April 15.
What We Will Do in 2012
Another truth about reaching goals: being as specific as possible makes the goal more powerful.
So we need to call our bank and talk to a financial adviser, or just use the retirement calculator at CNN Money, about how much exactly we need to save up for a comfortable retirement.
Once we know a dollar amount we are shooting for (which could change over time, but that’s OK), we can divide that figure by the number of years until target retirement to find out how much we need to contribute each year. (To take into consideration the power of the interest and dividends that will build over time, we can use a retirement calculator). Having such specific goals puts everything on the table: which will both energize us and ease nagging worry about the unknown.
For some fun charts on setting goals and measuring progress on saving money, see my Printables page.
Next Goal: Making Our House into a Home
Next week in the Goals series, I’ll let you know my hopes and dreams for our house, and how we are having to readjust expectations.
How about you: can you tell me about one of your goals for this bright new year? Let me know in the comments, and I promise I will respond to everyone.
Share this post:
Well, half way through the year I have not faced the fact that I need to start saving for retirement. I will now pick up the phone- call an investment company and take action.
Em