Do you have a list of your financial goals? Or do you have a financial plan?
Over the years, I have developed a habit of setting up financial goals, but I never had a financial plan. It seems that I never needed one. But it was a big mistake not creating a financial plan, so I would have a clear picture of my financial goals. It is so easy to get distracted and forget what we try to achieve right now and start spending money on something else.
I remember the days when we were saving money for a down payment on a house. It was challenging because we were trying to pay off our student loans at the same time. We would spend a good chunk of saved money on summer vacation because we felt tired and needed to have some fun. A big mistake!
If we had set up a financial plan, it would help to create a timeline to follow our goal, like saving money for a house. We didn’t set up a budget to follow through and see the progress. Eventually, we saved enough money for a down payment and bought a house. But looking back I see that we would save more money and faster if we came up with our financial plan.
When you are young and just starting in life, it’s very hard to come up with a financial plan. You don’t have a big picture of what financial goals you want to accomplish.
When you’re older and already have a house, a couple of cars, sent your kids through college and saved some money for retirement, you would think that you don’t really need a financial plan. You’re wrong. The financial plan is an important part of everyone’s life never matter how old we are.
Unfortunately, without a good financial plan, it will be difficult to reach your financial goals because you don’t know which goal to work on next. The idea of setting up your financial plan is to be ready for each financial step in your life and have a clear vision of what comes next.
How to set up a financial plan?
When you first come up with an idea of a financial plan you need to have a list of clear goals in mind. Your goals could be short-term or long-term goals. The more specific your goals are the better. I believe that financial goals should be different based on your age.
In this post, I want to share the list of short and long-term financial goals for baby boomers.
Financial goals for baby boomers:
1. Get out of debt
Getting out of debt should be the most important financial goal for people in their 50’s and 60’s. Living debt-free is important for all generations. However, for baby boomers, it should be number #1 short-term financial goal.
When you’re working you have years of earned income to pay a mortgage, credit cards, student or any other kind of loans. But once you retire, you will be living on a fixed income. Being debt-free gives you more freedom and money left in your pocket to enjoy your golden years than struggling to pay the mortgage or other debts.
What I am doing: Over the years we have accumulated a lot of debts. We never had a credit card debt, because we pay our balance in full each month. But we have done a few big renovation projects on our house and accumulated a significant amount of construction loans. In addition to that, we never had enough money saved for our daughter’s college, so we had to pay off her student loans.
Over time, we had gathered $170,000 in debts. It took us many years to pay them off. By the end of 2019, we should be done paying off our daughter’s student loan. The only debt we will have left is the mortgage. We try to increase our payments towards the principal, but I don’t think we will finish paying it off in full before we retire.
2. Maximize your retirement savings
Most of us try to save and invest money in our retirement plans like 401(k), IRA and Roth IRA. However, I read a lot of articles about baby boomers who fell behind on this task. I know how easy is to be discouraged and give up on your efforts. But, if you are in your 50’s and planning to retire at your full retirement age, you still have 15 years to work, save and invest.
Do you know how much should you be saving for retirement?
Did you figure out if you have enough retirement savings to support your lifestyle in retirement?
The most popular rule of thumb is 10% to 15% of gross pay (before taxes) goes to retirement savings. But you need to save more than 20% if you are starting late in your years.
What I am doing: Currently Roman and I are saving around 20% of our gross pay. In the beginning, we put around 10% for our retirement accounts. We needed extra money to pay off our daughter’s student loans and construction loans for home renovation projects. Our strategy was to use the extra cash to pay off debts and slowly bump up the percentage of our retirement savings. We persistently added 1% to our savings each year until we reached our goal – 20%.
Related Post: Financial Planning for Baby Boomers
3. Create a retirement budget and plan for big expenses
Do you have a budget?
Do you know how much money you spend each month or each year? How much is your income? How much are your expenses?
When in your 50’s you already know how you want to live your life in retirement. It’s very close and your dreams and ideas are clearer than in your 30’s or even 40’s.
One of your financial goals should be creating a retirement budget. Transitioning from working to retiring will take some time and you need to know how you will be spending your money. You spend your life saving and accumulating money, start thinking about how you’ll draw from your nest egg.
You need to plan for big expenses like buying a vacation house, a boat, a new car or maybe paying for your kid’s wedding. Regardless of the expense, it’s important to pinpoint them and be ready by saving more money for that expense.
What I am doing: Our retirement budget is work in progress. I have created a spreadsheet of future expenses and the cost of it in retirement. The biggest chunk of our savings will go to travels. We love to travel and planning to spend 5 years exploring the world after we retire.
Related Post: 7 Easy Steps to Help You Set Up a Budget
Related Post: Why Predicting Retirement Expenses Is Important?
4. Stay healthy
Staying healthy should be a long-term goal for all baby boomers. Everyone knows and hears it often that the healthcare cost is going up every year. The reports are full of data warning us that we need to have more than $250,000 saved to cover our medical bills because we live longer.
So, there isn’t any other way for us, but to invest in our bodies by staying fit and healthy. Now it’s time to join the local gym, yoga studio or hiking or walking club. Look at your diet and cut back on anything that harms your health. Quit smoking or excessive drinking. Start a diet or fitness plan and lose weight if you need to get healthy and fit.
5. Dream about what you want to do when retire
Do you know where are you going to live in retirement? Or what are you going to do every day when you stop working? Are you going to retire in place or relocate to a more affordable state or even overseas? How it will affect your finances?
You’ve probably already taken baby steps with these questions to have a vision of your next phase of life. Now it’s time to get more detailed and fill in the missing pieces. Your financial plan should help to stay focused on setting dreams and goals for your retirement.
What I am doing: What we like to do? Roman and I share a passion for reading. I love history and I like to read historical novels. Roman’s favorite books are on alternative history. We share another passion – a passion for traveling. Before coming to the US, we used to live in several different countries which gave us a great experience. When we retire, we are planning to travel around the world for the first 5 years of our retirement. Then we would slow down and probably will make a few big trips. This is our dream, but we need to have enough money saved to support our traveling expenses.
I believe that now is the time to do these things and dream about your retirement, because if not now, then when?
Related Post: Finding Best Places to Live in Retirement
Financial plan in small steps
With any planning, it’s always a good idea to break it down into small steps. Taking baby steps to reach your goals will help you to get there faster and with less stress.
For example, if you are planning to buy a vacation home, you cannot just wake up in the morning and put an offer on that dream house (probably some people do!). Most of us we’ll need to save up some money for a down payment (5%, 10% or 20% depends on the status of your budget). Before that, some of us we’ll need to reduce debt.
The financial plan will help you to set up short-term and long-term goals and assign a timeline to this process.
Budget is a key to a financial plan
Budget plays a key role in any financial plan because you have to control your finances. You need to set up your budget and stick to it. Budget is a tool that gives you complete control over your money, so you can decide how much to save and how much to spend and if you are ready to spend and where.
Looking at your budget spreadsheet you might realize that you would rather sacrifice your desire to go on a family cruise vacation so that you have more money saved to buy a boat or a vacation home. So, a budget lets you see where and when you spend your money and how you want to do it.
Financial plan benefits
A detailed financial plan will help to stay focused on your financial goals. It keeps you moving forward and creates a sense of the timeline for achieving your short and long-term goals. Without the plan, it’s very easy to get lost and forget what should come next.
If one of your goals is to get rid of debt, you need to set up the timeline for this goal and create a strategy which debt should be paid off first. Then you move onto your next goal. So, the financial plan gives the direction of your next step and let’s you stay focused on the big picture.
Do you have a financial plan? Have you thought about setting up a financial plan with detailed financial goals?
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