Finance goals can help you resist overspending

August 17, 2008|By Gregory Karp | Gregory Karp,The Morning Call

When economic times are tough, returning to spending basics can help. And nothing is more fundamental than setting goals. As the saying goes, "If you aim at nothing, you'll hit it every time."

Personal finance experts will tell you having goals is essential for getting a handle on your money. Besides providing direction and peace of mind, they apply to daily life. With marketing bombarding us every day, fueling our wants, a set of goals can help us to say no. They remind us there's something we want more than the tempting purchase right in front of us.

How do your develop goals? It's not difficult. Most personal-finance books discuss goals, frequently in the first chapter. We looked at Personal Finance for Dummies by Eric Tyson; Smart and Simple Strategies for Busy People by Jane Bryant Quinn; Easy Money by Liz Pulliam Weston; Just Give Me the Answers by Sheryl Garrett; Talking Money by Jean Chatzky; and The Six-Day Financial Makeover by Robert Pagliarini.

The authors give similar advice: Brainstorm money goals and write them down, both long-term and short-term goals. Each objective must have two components, a dollar figure and a date for completion.

Here are possible examples:

* Eliminate consumer debt. $8,500 by January 2010. There are plenty of financial reasons to get out of non-mortgage debt. But some of the most valuable are nonfinancial: less stress, a sense of freedom and, perhaps, more harmony with your significant other.

* Build an emergency fund. $2,500 by March 2009, then $25,000 by March 2013. Creating a rainy day fund can be a two-step process. The long-term goal is a fund equal to three to six months' worth of bare-bones living expenses, such as food, shelter and utilities. A shorter-term goal might be to stash away $2,500. Then it's not a crisis or a time to incur debt when the car needs expensive repairs at the same time you need to replace your clothes washer.

* Buy a house. $25,000 down payment, May 2012. House hunting begins with a pencil and calculator, not a guided trip from a real estate agent to your favorite neighborhoods. Be clear about what price you will pay for a house, which lets you estimate an amount for a down payment. That's opposed to trying to figure out how you can possibly afford a down payment on the for-sale house you just fell in love with.

* Vacation. $4,000, March 2009. Of course, vacations are optional, and many can cost less than several thousand dollars. But don't dismiss the value of shared experiences with family and friends. Paid-for vacations can be more relaxing than ones charged to a credit card.

* Finish basement. $30,000, August 2011. For people who are homeowners, list your major home-improvement projects and home-furnishing purchases in priority order.

* Buy a car. $18,000, October 2014. You will replace your vehicle; it's just a matter of when. Start saving a substantial down payment or, better yet, a lump sum to pay cash. A slightly used car is often a better value than buying new.

* Retire. $1 million, September 2030. Do you anticipate knocking off work at age 70 and being a homebody, or quitting at age 55 to travel the world? Those plans require vastly different amounts of retirement savings. To estimate the money you will need, run through scenarios with easy-to-use calculators online at such sites as or

* Help pay for children's college expenses. $50,000 per child. While important, saving for college expenses is a lower priority than others. For example, you can obtain low-interest loans for college expenses, but nobody lends money for retirement. Few families will be able to fund all their other savings goals and put aside 100 percent of college tuition. Do what you can. Learn more about college savings plans online at

Establishing goals is not enough. Allocate regular and automatic savings toward each. Which goals are most important? Consumer debt, retirement and an emergency fund should be high on the list. After that, you decide how much money to put monthly toward each goal.

Then, next time you're tempted to make an impulse buy, you'll stop yourself because you have a reason to say no. You have goals.

Gregory Karp writes for The Morning Call in Allentown, Pa.

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