I’m still pretty new to the budgeting game, but it seems like one of the biggest benefits of using a budget is how it helps you set and accelerate the achievement of goals.
Now that I’m living within my means I’ve stopped worrying about keeping the lights on and shifted focus to my (and my wife’s) short, mid, and long-term financial targets.
Let me share my top six financial goals with you:
1. 1-month buffer: $5,100 lets me live on last month’s income.
2. 3-month emergency fund: ~$15,000 to give us peace of mind in the event of home, car, and non-catastrophic medical emergencies.
3. Pay off all debt, other than primary mortgage on the house: roughly $72,000.
4. Finish my basement and make other home improvements: ~$40,000 to $50,000, depending on how much work I do myself and how much labor I can get by bartering copywriting and web work.
5. Save for kids’ college: I don’t know whether we’ll want to help the kids with school, but we want to be able to. $100,000 to get three or four kids through college?
6. Save for retirement: I’m also fuzzy on this number. $1,500,000 seems like a reasonable target, based on previous discussions.
I feel firm on the amounts and order of goals 1-3, less so on goals 4-6.
I welcome your comments and feedback, and I’m looking for discussion on one key point:
Is it smart to work on these goals in strict sequence? In other words, am I savvy or silly to hold off on retirement savings until goals 1-5 are handled? What about the sequence of the rest of the goals?
You’ll notice I left time frames out of the discussion. The rate at which I accomplish these goals will depend completely on my income growth. My brain is hard-wired to seek an income in the $200,000 per year range. If all went according to plan, I’d be earning at that level again with about three years. If all didn’t go according to plan, I’d still be living within my means and chipping away at these goals, however slowly.