Wednesday, March 5, 2008

Short Term Financial Goals

Do you have any short term goals for your finances? I'm not one to make New Years Resolutions so I don't say things like "I'm going to get out of debt this year" or "I'm going to cut my grocery budget this year". I do, however, make small financial goals from time to time. Those big ones that so many people make at New Years are just too broad for me -- I need to be more specific.

Since we are following Dave Ramsey's baby steps, I use those as a guideline. Late last year we were ready to move to step 5 -- invest 15% of your income into retirement. It took me a few months of procrastinating before I finally did it. I contacted one of the Endorsed Local Providers (ELPs) found on Dave's website and talked with him about opening a ROTH IRA for my husband. We had been setting some money aside each month while we researched our investment options and in November we wrote a check for the initial investment. Then we set up an automatic draft every month for 8% of our income so that we wouldn't have an excuse to not follow through. We only did 8% because we are already investing 7% of his paychecks in his retirement through work.

The next step on Dave's list is number 6 -- pay off your mortgage early. I would LOVE to be able to do this in 7-8 years but that's unrealistic. Well, I could do it if we stopped putting money into all our various savings accounts each paycheck but then we wouldn't have that money available to use for those different categories. (I use savings accounts as a sort of "envelope system" and will write about that later today or tomorrow.) If we suspended all that savings each month and put the money on our mortgage instead we would be able to pay it off in about 8 years. So my goal last month was to figure out how much extra I could realistically put on the mortgage. That's a really tough question! My husband works for a local municipality that gives merit raises every year on the anniversary of your hire date. For him that's sometime in December. So what we did this year was take the difference between his paycheck in November and his paycheck in January and pledge to send the that amount to the mortgage company as an extra principle payment. That's only about $65 a month because we had an increase in our dental insurance costs this year starting in January that offset much of his raise. But it's better than nothing! Each month I already have the mortgage payment set up as an automatic draft from our checking account. The day after that payment goes through I go to the website and manually make an extra principle payment of $65. There's no charge for this as long as I do it within 10 days of the due date.

We would love to commit to putting all extra windfalls on our mortgage but we can't seem to bring ourselves to do that right now. There are always other things we'd rather do with the money, like buy a new sofa or pay for music classes for the kids. We just signed a gas lease for our mineral rights and got a bonus check. It's sitting in the bank earning interest right now instead of being sent to the mortgage company. I need to really evaluate these sorts of windfalls for the future, though. I know that my parents we able to pay off their mortgage early through windfalls like that. Those are some thoughts for another day.

Like I said, our goals are small right now but we're making progress and can see the light at the end of the tunnel.


Monica said...

Wow, that $65 a month is going to add up to years of savings. Great job. Your post reminded me that every effort is a worthy effort. Thanks for the encouragement.

Alissa said...

HI there,

I found your blog through Money Saving Mom. Congratulations on doing such a great job with your finances! We are loosely following Dave Ramsay, but I prefer to do things a little differently. I sort of combined Mary Hunt's "Freedom Account" system with Dave Ramsay's envelope system - so we have sort of mini savings accounts for various categories as well. I find it really helps to level things out, and eliminates the need to accumulate more debt or tap our emergency fund. Like you, we don't like to commit all of our extra windfalls to debt repayment, as there are always other things that come up (even with our envelope system in place!). So I decided a good compromise was to split everything 50/50! So 50% of everything that comes in goes toward debt repayment, and the rest can go into whatever envelope we choose. :) I figure you can't stop living just because you have debt - you still have to reach for your goals. I like the 50% thing because it feels like a good compromise for us.

Congratulations again, and I look forward to reading more of your blog. :)