Tuesday, December 27, 2005

Goals:

I mentioned in a previous post about having a financial new years resolution. Well being as the new year is quickly approaching, it would also be a time to set some financial goals for the future. It will be tremendously helpful if you have already figured out how much money you are spending each week. How far in the future should be the question you ask immediately after reading that sentence and there are a few answers to that question. Lets break down financial goals for college students into 4 categories, I know it sounds like a lot but it isn't bad at all.

1. Daily financial goals:
You should already now how much you spend each on average each day because you kept a notepad with you and wrote down everything you spent money on for a week. When you get up each morning (or afternoon as many college students do), decide if you actually need that 2 dollar coffee and the 2 dollar bagel or muffin. Could you instead go to the grocery store and buy a pound of coffee that will last you for a month, and a dozen bagels for the same 4 dollars? It might cost you a few dollars more, but remember you just got a months worth of coffee and 6 days worth of bagels which means it costs a very small fraction of what you would have spent that month for coffee and bagels from the coffee shop.

Now you may say, but Mike, I don't buy coffee every day, I don't even like coffee! Well, look at that notepad you have that you used to keep track of your spending for the week. Do you go out to eat everyday when you work? Do you buy 30 dollars worth of alcohol each week? Everyone has something that they spend money on each week that they could easily cut back on and not miss much at all. This is talked about in great depth in a book I mentioned previously. The author calls this a person's "Latte Factor" and it is anything that a person buys everyday, or every week, that they could cut back on and instead use the money to invest.

So in short, your daily goal will be to not spend money on your "Latte Factor" and instead keep the money in the bank.

2. Weekly financial goals:
If you have determined your "Latte Factor" and you are actually making sure that you are keeping the money would have spent on it in the bank rather than spending it, you should now have extra money in the bank. Instead of leaving this in your checking account where it will earn now interest, move it over to a high interest savings account. That way your money will be making money for you. The amount of money you save every week should be the same, or very close to the same, so set up your savings account so that it automatically deducts that amount from your checking account every week. This means that you do not even need to think about moving the money each week, and it also means that the money doesn't stay in the checking account and you end up spending it. You will see over the course of a year that this money adds up to be a lot. Once you have a significant amount in your savings account don't just go out on a shopping spree...Keep Saving!

3. Monthly financial goals:
Each month you should come up with a new monthly goal. Perhaps you don't have a job right now; this month your goal should be to find a job. Maybe you want to start investing in the stock market; pick five stocks and watch them for a month to see how they do before you just jump in and invest in them. Maybe you have a lot of credit card debt, use the month to gather all of your statements and figure out how much debt you are in. You will never pay off debt if you don't know how much you have. (More to come on this in a later post) Opening a high interest savings account should be one of your first monthly goals. In fact it takes about 10 minutes, not a month, but don't force yourself to do too much at once and then become upset because you didn't meet a goal.

4. Year financial goals:
Each year you should be setting at least one financial goal and that goal should be I am going to save X amount this year. That does not mean however at the end of the year you are going to see how much money you have in your checking account and saying "oh I dont have enough" and forgetting about it. No, you are instead going to have opened a savings account that I have already mentioned several times in this post, and you are going to set it up so that it automatically deducts the amount you want to save for the year divided by 52 year week. (If you want to save $5000, there are 52 weeks in a year so each week you will save $96.16) This way you will never have to think about saving the money, it will just do it.

In a upcoming post I will talk about IRA's and why you should be investing in one. If you are currently in college, and plan to even retire, you need to open one now, it may mean that you can retire early, or just that you can retire period. Many people do not realize the importance of saving a little when you are young so it can turn into a lot by the time you are old rather than saving half of your paycheck each week when you get into your 40's, 50's and 60's so that you can scrape by when you retire.

Start Saving TODAY!!

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