Defining financial goals

[kork13]

I'm in the midst of a minor crisis of questioning what I'm doing with my finances… Questions like: Am I saving enough? Or too much? Is my saving/investing strategy reasonable and effective? Am I being somewhat tightwad-ish for no reason? Do I know why I'm saving? Am I missing out on opportunities/experiences because of my saving habits? (and so on…)

So in an attempt to ease my (probably irrational) concerns, I've been trying over the last week or so to define in precise terms my financial goals so that I can refocus and hopefully give myself a little better direction on what I'm doing, what I need to do, and what I don't need to do. ……and I've gotta say, it's kinda hard!

What I've been able to come up with is this:
LONG TERM:
- Retirement savings of $2M (today's $$) by age 60
- Pay for 50% of (future) family college expenses
MID TERM:
- Own home outright by age 45
SHORT TERM:
- …?

As I often do on these forums, I'm mostly thinking out loud (via my keyboard)… But what sort of things should I consider in developing my financial goals? And just for my reference, what are your goals? Or do you find it worthwhile to even define your goals? It seems important, just so you know where you're headed, but it seems rather difficult to keep sight of.

As for background, I'm 25 y/o (next month), single, in the military, and generally doing pretty good financially. I make much more than I need, so I'm able to save 35% of my gross pay, and donate almost 15% to my church/charity. I have an EF in place, a home DP ready to go (and growing) for whenever I eventually buy a house, and a solid start on retirement savings. I consider myself extremely blessed/lucky/whatever you prefer, because I'm really in a very good position….which perhaps is why I'm questioning myself right now, not knowing how to answer the question: "What's next?"

[MonkeyMama]

I consider myself extremely blessed/lucky/whatever you prefer, because I'm really in a very good position….which perhaps is why I'm questioning myself right now, not knowing how to answer the question: "What's next?"

Just keep chugging away at it! I remember feeling the same way at that age (we were very aggressive savers). I remember feeling very, "What next?" But life moves on and more goals will take shape. For one, I REALLY under-estimated how much kids would set us back. Secondly, maybe it's easier to focus on retirement in your 30s - I found it really hard to get excited about "saving for retirement" in my 20s. Anyway, in my mid-30s, catching up from the "young kid" stage, and focusing on retirement is keeping us VERY busy. I share because I think it is easy to be overly optimistic in your 20s and not realize how much life happens. So, I recommend to keep chugging along.

My own goals?

-Pay off home by age 45 (good goal!)
-Save as much as possible to retirement. At some point I estimated I needed $2M or $4M or whatever, but the truth is I just have to put in as much as I can. More is better. I find it hard to focus on a number even in my 30s - so many variables. But retirement is really my primary goal at the moment (I know the more we save early on, the easier our goals will be reached when the time comes).

Short-Term - survive! Scrimp as much as possible to pay off home and retire some day.

Any other financial goals are on the back burner while we have small kids and one income. & we mostly made all those goals very young - like ample savings and no debt - stuff like that.

We bought our home in our young 20s, so I understand if you are doing well financially you may not have a lot of other goals in the interim. When other people are paying down debt, saving for a home, etc., etc. This whole "kid" thing has kept us very busy age 25 - 35.

If you absolutely see no kids/family in your future, it may be a good idea to find something more meaningful to spend your money on. i.e. focus on charity - something to focus on in this interim stage and give more meaning to your goals. That said, you are young and I wouldn't want to put too much resources into that if you see family in your future. Family can be pretty expensive. (Did I mention that part? )

P.S. I think having goals is important - and I think you have some. Since you are doing so well financially, maybe it would help to focus on non-financial goals as well.

[mcfroggin]

You have a good plan in place. Be sure to maximize tax strategies along the way.

I also would look into passive investing ideas. I recently wrote an article on some of these ideas.

[snafu]

Having goals is admirable but remember we make plans and G_d laughs! Sum needed for retirement is very subjective, depending on where you live, the lifestyle you desire, your health, and a zillion of details. Those guys that were touting the need for $1 M were pulling that figure out of mid air; mostly bent on selling a naive investor a product that meant years of ongoing commissions.

Having a house paid for by age 45 will free up a ton of money that would have been interest paid via the amortization schedule. If you are in foreign lands, take advantage of the situation to travel, understand other cultures and possibly learn foreign languages. That is of immense benefit given globalization. Take up hobbies of interest which may have earning potential/cost avoidance over the next 60 years. At nearly 25, you need to have fun!

[disneysteve]

Having goals is admirable but remember we make plans and G_d laughs!

Plans are definitely just estimates of what you'll need, when you'll need it and what you will need it for. Those plans will change numerous times over the years. At 25 and single, you really have no idea where life will take you. You certainly should have goals. Just don't think they are carved in stone. Be ready and willing to change them as circumstances change.

There are also all the unknowns like what will happen to taxes or Social Security or inflation. We plan based on how things are today but variables beyond our control could drastically alter, up or down, the amount we need to set aside for future goals.

[maat55]

I don't think you can over plan. I would not be planning on SS or government pensions more than 10 years out.

[kork13]

I would not be planning on SS or government pensions more than 10 years out.

haha yea.... I've got absolutely zero illusions that I'll ever see social security. I am somewhat planning for a military pension, but even that is subject to change. However, all of that is where I initially came up with the $2M figure, to provide at least a $5k/mo income. And as DS brought up, retirement (for me) is a LONG way off, so even this "plan" is a shot in the dark.

Honestly, the idea of the goals and planning is mostly just to give me some direction, as opposed to just saving as much as I reasonably can (which I'm currently doing) without knowing what I'm looking to do 3, 5, 10, 20+ years from now.

[Frugal]

I think when someone is young, it is important to continue to build savings far beyond the basic emergency fund. I don't know about you, but sometimes I fall into the trap of trying to pay off a lot of debt all at once (student loans and mortgage in my case), without building up savings or an emergency fund at a commensurate pace. It is best to focus on savings I think when you are young, otherwise an emergency can arise, and an EF can be depleted rather rapidly. In my opinion, you can never save too much. It sounds like you are doing pretty well for someone who is 25! A lot of people who are older than you cannot budget as well.

[Brocksby]

Every country has to define its financial goals and revise its policy as world is facing now a worst kind of financial distress. it will turn into nightmare if the defining step are not take in time.

[riverwed070707]

What do you want to do career-wise? Are you going to make a career of the military or do you plan to get out at some point and if so when and what will you do? I'd start planning your goals based on what you want to do next, even if those plans are only tentative.

You said you're saving for a house, but what about the other things you'll need once you settle down? Do you have a car? Will you need to funish the house? Will you travel - and if so where and how often?

Right now is the most financial freedom you will probably ever have. Save and plan for these things now, and don't forget to experience things now too! If you don't know what you want to do, maybe start a bucket list and begin with checking off those experiences.

[kork13]

Ah! Of course -- I did forget that I'll need to buy a car again once I get back to the states... haha good catch. Guess I'll be diverting some money for that... House-wise, I've mostly got everything I need to furnish a place, so that's not really an issue for me.

I am planning to stay in the military, at least for as long as they'll let me. If not the military, I haven't really decided... my options are open and interests wide, so I don't know, though I have considered some possibilities. However, my service commitment doesn't even run out for another 5 years, so I have some time to ponder those possibilities...

I do enjoy traveling, but do it less often when I would be traveling alone. I go when I have the opportunity and the inspiration, but I expect some of the more frequent travel may be delayed until later on.

As for the bucket list... I've got some friends who supposedly have built some of their own, but I honestly can't say that I even know what I might include on mine. Perhaps call me narrow-minded, but maybe I just don't know what's out there... Or perhaps I simply want to see and do it all.

Thank you for your thoughts... that's sort of exactly what I'm looking for, just some ideas of where I should be looking. I really appreciate it.

[Steel]

One of the best GOAL is having financial freedom not financial security. Thought is creative. All thought, good and bad, is creative and tends to lead to a material thing. That is why we must learn to be more positive.

[GREENBACK]

What's next? You seem to be on the right track. Now let father time make it happen. I don't think you know enough about your future to try to guess at too much else. A few years down the road the path will get clearer for you. You are eons ahead of the average 24 yr old.