Money for the “Big Picture”

by Matt B

100_0420There are things we all want from our hard work and money.  Some are big, most are relatively small.  The smaller things like food, clothing, toys, and everyday items are relatively easy to place in your budget.  One of the real secrets to wealth is being able to successfully work your budget to afford these smaller things, while saving and planning for the bigger picture.

Maybe you have had it a little bit rough.  Maybe you have dug yourself out from a debt level that seemed insurmountable.  Good Job!  If you were a success at this difficult task, there is no reason you should not start to take a look at the bigger money picture.  There are no doubt goals and achievements that you have in mind.  If so, write them down.  This task alone will start you on a path that will help you reach your goals.

(Starting Small): Vehicles

Buying a new car is an inevitability.  You will need a new car.  Paying cash for a car (new or pre-owned) is a great feeling, and will save you tens of thousands of dollars in your lifetime in interest payments.  Even if you are making payments on a car or have paid off your car, start a car fund.  If well funded, you may become so far ahead that the money that once was your car payment can become deposits to your car fund, or any other goal you may be working toward.  Saving $250-$400/month adds up FAST. Even if you can not save enough to completely buy a car, you can have a very meaty down-payment that makes your loan seem insignificant.

Career

Setting career goals is tough.  No two people’s goals will completely coincide.  While some may want to make $500k/year by age 30, others may be more than content making $50k/year.  Everyone has different needs and wants, and everyone has different ways to satisfy these needs and wants.  That said, I can not tell you what your career goals are.  I can tell you that making a “career map” is a great idea that will guide and motivate you.  Plan in two-year increments where you would like to be in your career.  Set “achievements” along the way to help you.

If you want a new career, and it requires two more years of school and a training program that is six months long, track your progress.  When you get the degree or training certificate, mark it off on your “achievements”.  If you are looking to start a business, make a list of what it will take.  Your business plan will be the first step, but in addition to the plan itself, make a to do list that maps out how to properly set up every facet of the business, from funding to staffing.

House

At some point in your life, you will likely want to purchase a home.  If you don’t, just skip this section entirely.  It does not apply.  If you are in the 99.9% of the population that wants to own their home, never stop working toward this goal.  I am not going to lie, in order to buy a house the right way, you are going to need a lot of money.  Even if you are looking for a small starter home, depending on where you live, you will spend AT LEAST $100,000.  A mortgage is not a bad type of debt, generally speaking, your home is an investment and your investment is appreciating as you pay for it.  Ideally, a down payment of at least 20% of the purchase price is recommended.  This is not always a necessity, but is always a good idea.  That means, even for your nice new suburban home, you will need $20,000 dollars.  Whether you live with mom and dad for a while to save some cash, or can stash some away while you rent, in order to finally settle down in your own home, cash is necessary.  In addition to the down payment, you will need money for closing costs, inspection, appraisal, maintenance, furnishings, insurance and who knows what else.  The best practice for purchasing a new home is to go in with at least double what you think that you need.  I know that $40,000 cash reserve seems like a lot for a $100,000 home, but it is better to be prepared than surprised and overwhelmed.

Your house is the biggest purchase you will make in your life.  Do it right!  Budgeting, planning and understanding are the cornerstones of a successful and stress-free purchase.  While it will not be perfect all the time, keeping your eye on the big picture will help you achieve the largest purchase in life.

Retirement

While a home is the largest purchase you will ever make, your retirement is the largest investment you will make in your lifetime.  Even if this is your first year out of college, taking control of your retirement goals early will make it easier and more habitual in the long-term.  The power of compounding interest will become apparent and your retirement fund will multiply rapidly over the years.

Automating your retirement money is the smartest way to prepare.  Participating in 401k plans at work (especially if they match contributions) with automatic investments is smart and easy.  Most policies can be managed online, and why not get free money that your employer may be offering?

IRA’s can also be automated with most brokerage firms.  Mine is at ING Direct, who make it simple and inexpensive to contribute to and manage my account.

I think by now, most people under 40 have realized that social security will not help them much (if at all) after retirement.  If you do not take your retirement in your own hands, you will likely end up relying on family, friends or strangers to take care of you when you can no longer do so yourself.  Being proactive will avoid this blunder and make you more comfortable and happy later in life.

Budgeting, automation and occasional adjustments will ease the stress and difficulty of the biggest financial obstacles in your lifetime.  Keeping “the big picture” in mind will help you achieve your goals and keep you on track with daily, weekly, monthly and yearly goals.  Do not lose sight of these goals, but do not let “the big picture” consume you.  Balance is key.

{ 2 comments… read them below or add one }

MoneyEnergy May 20, 2009 at 9:50 pm

I know I don’t count on any kind of social security or government pensions to help me out much if at all by the time I’m there…. ours is definitely the DIY generation (I’m at the tail end of GenX, too). Good post here on thinking about all the big things.

mattb May 20, 2009 at 9:54 pm

Thanks…I couldn’t think of anyone around our age that doesn’t realize that SSI and Pensions will soon be a thing of the past.

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