How will you know you are there if you don’t know where you are going?
Good question! Have you ever gotten in your car with no idea where you were going? The last time I remember doing that was cruising in high school. We’d hang out a while at Mabe’s Pizza hoping the guys we liked would drop in, but after a while, it was time to give up the booth so we’d go for a drive. Sometimes we’d go up and down the streets, or maybe a run through Phelps or Palisades Park, and then back to Mabe’s. We’d all chip in to pay for gas and hope our parents did not notice the miles we put on the car.
As an adult, drives without a purpose are extremely rare and often there are multiple purposes or stops with one trip. Time is precious and you want to use yours as efficiently as possible. You might drop the kids off at school, meet a friend for coffee, pick up dry cleaning, and then grocery shop all in one trip. But you wouldn’t do your grocery shopping first because the ice cream would melt. There is an order to your stops that makes sense.
There is almost always a destination when you fly, or take the bus, or a train. Right? Tickets require a starting or departure point and a stopping or arrival point. Especially when there is a cost you must be specific, or you will spend more money than required. Who would buy a ticket for a flight from Denver to San Francisco if you lived in Chicago and wanted to go to New York City? Even if that is what your best friend is doing (she lives in Denver), it makes no sense! It is the same when you save and invest. You are unique—both your starting point and your preferred ending points or goals.
I am an identical twin and that is about as close as a person can get to being the same. We grew up side-by-side and even dressed alike until middle-school years. Only our close friends and family could tell us apart. However, with all the “sameness”, there were always differences and those differences grew. Even though we married in the same month (our poor parents-literally!), our married financial situations—both needs and goals—were different. Shortly after her wedding, my twin and her husband were deployed overseas with the U.S. Army. My husband and I finished our last year of college and started our respective careers and, once we were established, started our family.
Although starting at relatively the same point growing up, the financial goals of my twin and her spouse were on a different trajectory than my husband’s and mine. Neither one was better nor worse than the other. The timing of education, career, children, home purchase, retirement, etc. was totally different and unique, as it should be! Although we had similar reasons to save and invest, the timing and financial costs were different. It would have made no sense to make financial decisions based upon the other’s circumstances and goals.
That is true for everyone! Your reasons for saving and investing are unique to you. No one is the same age with the same lifestyle, income, expenses, family circumstances, and tastes as you. Your priorities will be different. Especially in the world of investing, it is tempting to compare notes with a friend or family member. I urge you to honor your unique needs and goals and save and invest accordingly.
What do you want to accomplish with the money you save and invest? What do YOU value? Maybe your list includes buying a car or house, taking a trip, helping a relative or friend, paying for a child’s education or for a wedding, leaving a legacy, and, hopefully, supporting yourself and perhaps your partner in retirement. Some of the things you want to accomplish are short term—within the next 5-7 years—and some are long term. Make a list.
Your list may be long, or it may be short, but it will very likely change over time. As a single person you want certain things. That may change if a special person enters your life and goals and decisions now involve two people. Children most assuredly change a person’s goals as do a divorce or a death in the family. Sometimes lifestyles change with a move to a new home and a new state. When my family moved from Illinois to Arizona, a swimming pool, which had not even been on our list of goals, moved to the top. To survive the hot Arizona summers and for family entertainment, it became very important. Our pool soon became the center of all our social activities.
There is an acronym for setting goals—SMART. You probably know what it means:
Let’s imagine that you and our partner have decided that it is time to buy a house. Based upon your joint incomes and visits to mortgage websites, you know the price range of houses you can afford. Because you currently do not have enough saved for a 20% down payment, you will likely need to buy and pay for mortgage insurance. That puts your monthly payment just over your threshold of comfort. Should you go ahead? Buying a house is a specific, measurable, and relevant goal. What about achievable? If the timeframe for your purchase is flexible, perhaps it would be better to wait and save enough to build your down payment so that mortgage insurance is not required, and you are not stretched too thin.
Of course, there are alternatives. When my spouse and I bought our first home, we borrowed some of the 20% down payment from family. We did that because we knew we could make our ongoing house payment plus pay back the family loan within six months, and we did. Other purchases were put on hold until we paid our family. We chose to do that because we did not want the cost of mortgage insurance added to the mortgage payment on an ongoing basis and our combined income was adequate to make the family loan payment. Of course, family had to be willing and able to lend, as well. Alternatively, we could have saved the extra money for the down payment and purchased a home in six months. Timing was the critical factor for us.
Each of you undoubtedly has made choices with your goals. Do we do x or z, do we wait to travel or buy a car, do we spend money on holiday gifts or donate to charity? Your decisions will be unique to you and your partner and family, and you will not always agree. Some choices will be easy, but some may require a family conference. What should you do if goals are conflicting, or you don’t agree what is a priority? There are no easy answers! As with any conflict, it helps to give the issue perspective and then listen. Let each person state their case and be prepared for questions. This is a negotiation and there might be a compromise available.
In between the starting point and ending points for your goals are many, many steps. Those steps require persistence but also flexibility. They will require commitment to save or invest and you must be willing to forego other choices.
How do you know if your goals are realistic and achievable? Even if it is a long-term goal, it is a good idea to get an approximate cost. There are resources to help estimate costs of education or retirement, for example. That will be the subject of another blog. In the meantime, I love this analogy:
A friend just moved to a new house in a big city. She asked you to come to her house-warming party, and you accepted. With gift in hand, you get in your car and set the GPS to her new address. Will you get there? It may be difficult. You must do something additional: start the car’s engine, back out of the driveway, and enter the road. Setting the goal does absolutely no good unless you take additional steps, sometimes lots of them. You may encounter a detour or make a wrong turn along your journey, and then the GPS will recalibrate. No problem. If you are diligent and keep your eye on the goal, you will eventually arrive at your destination.
It’s the same with saving and investing. It is not enough to set goals; you must do something else—open an account, deposit money, choose investments, and monitor your progress. Life may throw you a curve that may require you to change goals, or you may decide to take a totally different route. Recalibrate and keep going. Stay the course, and you will succeed. I know it!
If you are a beginning investor, or if you have started investing but want to know if you are on the right track, look for my book: How to Dress a Naked Portfolio: A Tailored Introduction to Investing for Women. The book is full of understandable financial information to get you started, and it is packed with helpful resources. You can now purchase on Amazon.
~Beverly J Bowers, CFP®