Strategic Planning and Foresight Can Go A Long Way
Although I’m currently burdened with car and student loans, this year I’ve decided to juggle my income between paying off my debts, saving for myself and investing toward the future. Therefore my financial goals for 2007 are to establish a small emergency savings and begin funding a Roth, all while paying down my debts.
Here is how I plan to accomplish all of this.
- Baby Step #1 – Stop incurring more debt. I’ve stopped the habit of borrowing to pay for things with money I don’t have. Now I’ll only use a credit card with cash currently in the bank. This will ensure my ablity to pay off credit card balances in full each month to avoid interest penalties.
Now I can begin focusing on completely eradicating the debt I owe.
- Baby Step #2 – Always pay yourself first. I’ve been involved in the workforce for ten years now and it saddens me that I don’t have a penny to show for it in savings. Even if I had put a mere $1 of each paycheck aside in savings these past ten years, I’d be in a more secure financial situation than I am now.
I’ve become wiser and now automatically deduct 15% of my paycheck to shuffle into savings each week. From today forward, I will always pay myself first before I pay anyone else. This includes paying into others’ hands for debts I owe, splurging trips to the mall, eating out, anything.
If money is particularly tight, everyone should strive to set aside at least 10% of their earnings for savings. If you choose not to, financial comfort may always elude you.
Once out of debt, I will bump it closer to 20% and establish the habit now as I continue on through my adult life.
- Baby Step #3 – Fund a Roth IRA. Since my company offers no match incentive for a 403(b), instead I’ve chosen to open a Roth IRA to begin funding for retirement.
Although I still have debt to pay off, my decision for this is rather simple. I can always make more money to pay off debt, but I will never have the benefit of time again.
- Through paying myself first, I will use 15% of each paycheck to establish a small emergency savings of at least $1,000.
- Then I will use half of that 15% to slowly continue building a nest egg savings of at least six months worth of expenses. The other half will go into funding my Roth IRA.
- Eventually I’ll have a brimming nest egg established and can thus concentrate exclusively on funding my Roth to the max each year.
- Any unexpected gift of cash I come into during the year (such as a raise or a tax refund) will go exclusively toward the above goals.
How To Make Your Nest Egg Flourish
I love the simplistic egg basket illustration used in “The Richest Man in Babylon” by George S. Clason.
If you put ten eggs into a basket each morning and take out nine each evening, what will eventually happen to your egg basket? It will in time become overflowing because you’re putting more eggs into your basket each day than you’re taking out.
Use this simple analogy to help build your own financial blueprint for wealth. Don’t foolishly labor for others without paying yourself at least 10% of your income first. As Clason states,
… for every ten coins placed in your purse take out for use all but nine, and your purse shall begin to fatten immediately
Always remember that a portion of what you earn is yours to keep, no less than 10%, no matter how much you earn. Pay yourself first.
Baby Steps Are Key ~†~
What are some of your financial goals for this year?
** If you’re uncertain about the imperativeness of funding a retirement now while you’re young, I strongly recommend taking time to browse through these articles by Ramit Sethi, The World’s Easiest Guide to Understanding Retirement Accounts and why It Never Gets Easier Than Now.
Ack, and if anyone can help me restore my sidebar from the bottom of the page, it would be appreciated. This post seems to have made it drop down in IE.
*desperately tries to coax it back up from the abyss*