Now that I have written about creating your ultimate financial goal and establishing your long-term financial goals, it’s time to think about short-term and intermediate-term goals.  I’ll also use the terms open-ended, close-ended, and overlapping funds.

Our Financial Plan

If I were to go back in time, say four years ago, and map out my financial plan, here’s what it might look like -

Financial Plan

Year 1

• Establish $2000 mini-emergency fund
• Eliminate all debt
• Contribute enough to 403(b) retirement to receive match
• Purchase adequate insurance (health, life, disability, property, automobile, etc.)

Year 2

• Establish fully-funded emergency fund
• Increase contributions to 403(b) retirement account
• Establish Roth IRAs for my wife and for me
• Establish Education Savings Accounts for our children

Years 3 – 10

• Fully-fund retirement accounts
• Fully-fund education savings accounts
• Increase savings for automobile replacement
• Increase savings for future home purchase

As you can see, these are pretty concrete, easy-to-understand goals, especially the goals for year 1 and year 2.  The real fun begins at year 3, or after you have paid off your debts and established an emergency fund.  (By the way, I have yet to find a financial expert who didn’t recommend paying off consumer debt and establishing an  emergency fund.  For our family, these were our first absolute-must goals.)

Close-Ended Goals -

Close-ended goals are time-based.  Establish the goal, establish an end-date for that goal, accomplish that goal, and then leave that goal behind.  Examples include paying off consumer debt, or paying for kids to go to college.  Close-ended goals can be long-term, intermediate-term, or short-term.

Open-Ended Goals -

Open-ended goals are goals which have no set end-date and are ongoing, lifestyle-related goals.  Examples include living debt-free or being a financial blessing to others.  Once again, these goals can be long-term, intermediate-term, or short-term.

Overlapping Funds -

Overlapping funds are funds which can be used for two or more goals.  An example would be, money in a savings account which could be used to pay for a newer automobile or used to purchase a new home.  As we prioritize our savings and move forward, our ultimate plan is to eliminate the need for overlapping funds.  We want enough money in our savings account to pay for a newer automobile and to purchase a new home.

Putting It All Together -

First, I create short-term, close-ended goals, like paying off my debts and establishing a fully-funded emergency fund.

Second, I create intermediate-term, close-ended goals, like fully-funding retirement accounts and fully-funding education savings accounts.  (Note – While saving for retirement will be ongoing, year after year, the time period for fully-funding each account is very specific, thus creating a close-ended goal.  This close-ended goal is established each year.)

Third, I create intermediate-term, open-ended goals, like increasing non-retirement savings and increasing charitable giving.  (Note – I could make these close-ended goals, if I liked, but I prefer to keep these goals open-ended, funding them with money left over after retirement and education savings contributions.)

Fourth, I acknowledge that certain funds, inside certain accounts, could be used for multiple purposes.  For instance, money in my savings account, which is earmarked for a newer automobile, could be used, in a pinch, to pay for college.  Money in a retirement account, while earmarked specifically for retirement, could be used to help out in the event of a catastrophic emergency.  My plan, however, is to fully-fund each of my goals, so as to eliminate any of this overlap.

Fifth, as I eliminate the need for overlapping funds, and each dollar is associated with a specific goal, the purpose of each goal is combined to help me achieve my long-term goals.

Possible Scenario -

I’ll use myself as an example, to see how this might all work out in the real world.

Short-term, close-ended goals -

Eliminate consumer debt and establish fully-funded emergency fund.  (Done)

Intermediate-term, close-ended goals -

Fully-fund retirement and education savings accounts.  (Done)

Intermediate-term, open-ended goals -

Increase non-retirement savings (for future home purchase and auto replacement).  (Ongoing)

Eliminate Need Of Overlapping Funds

This one is tricky.  Right now, I have enough in my savings to survive for one year, should my wife or I lose our jobs.  I also have enough, in savings, to be able to purchase a newer car, should the need arise.  I do not, however, have enough to also cover the down-payment on (or purchase of) a new home.  I can do one – buy a newer car -or the other – make a down-payment on a new home, but I cannot do both.   My plan, in the long-term, is to completely eliminate this overlap, so that I never have to think – “I could get the money from here, if I had to…”  Does this make sense?  I want enough money to cover the expenses associated with each goal.

Understand The Relationship Between Goals

Each year, one of my intermediate-term, close-ended goals is to fully-fund my 403(b) retirement account.  Even though this goal is close-ended for each year, the effect of accomplishing this goal, year after year, is long-term and open-ended.  In other words, every year, I have a goal of fully-funding my 403(b).  This is a goal, in and of itself.  However, doing this year after year, in reality, is helping to meet a long-term goal – retiring with enough money to purchase a nice home and live financially independent.

The truth is, none of our goals, whether short-term or long-term, close-ended or open-ended, exist in a vacuum.  Each goal affects the other goals.  That’s why it is so important to focus on on overlapping funds.  You can have all of the goals that you want, but if you do not have enough money, in the right accounts, earmarked for specific goals, your goals will prove meaningless.  I like to think of it as budgeting for the future.

I want to thank those of you who entered for a chance to win a free debt reduction book.  Winners have been chosen and I’ll announce them over the course of the next few days.  I apologize for the delay in posting, but I have been under-the-weather.  I feel much better now, and I would like to thank those who emailed or tweeted to ask how I was doing.

Side note:  I’ve mentioned it several times before, but just to clarify for new readers.  I live in a home provided by my employer, as part of my compensation.  One of my goals is to someday pay cash for my own home.  Should the time come and I need to purchase a home before I can pay for it with cash, my goal would be to have enough in savings to make a 20% down payment.

One last thing about overlapping funds -  When you get started, every dollar that you have will be overlapping.  This cannot be avoided.  For instance, say you have $10,000 in your savings account, with $5000 earmarked for emergencies, $1000 for automobile replacement, and $4000 for future home purchase.  You are driving down the street, your engine dies, and you need a newer car.  More than likely, you’ll try to find a car for less than $6000, the amount in your emergency fund plus the amount earmarked for automobile replacement.  What happens, the next day, when your refrigerator dies?  You “have” the money, but it’s not specifically earmarked appliance replacement.  Of course, you are not going to worry about whether the money was originally intended for appliance replacement, you are simply going to purchase a replacement refrigerator.  The money, in reality, was overlapping – it served more than one purpose.  Our goal, our plan, is to eliminate this scenario.  Over time, we want to have enough in our emergency fund, enough in our automobile replacement fund, enough in our new home purchase fund, and enough in our appliance replacement fund, to cover the expenses associated with each type of need.  Noting, obviously, that until we get to this place, having money in our account, even overlapping money, is much better than having no money in the account at all!

Final Note – By definition, the emergency fund is for unplanned-for expenses, and thus the money in the emergency fund is overlapping.  Problems arrive when we use money in the emergency fund for non-emergencies.  Personally, our emergency fund is only to be used in the event that my wife or I were to lose our job.  All other purchases and savings needs are included in our monthly budget.

Yesterday, I encouraged you to sit down and develop your  Ultimate Financial Goal.  Today, I’ll write about the next step in our week long series about Setting Personal Finance Goals.

Disassemble The Dream

As I mentioned yesterday, our ultimate financial goal is really our ultimate dream – where we would like to be, a what we would like to be doing at some point in the future.  Today, we have to disassemble our dream, break it into its constituent components, so that we can then figure out how to best achieve our ultimate goal.  For this, we will need to take a look at the drawing we created yesterday.

At the center of my drawing, there is a picture of a house.  The house sits in the middle of a nice-sized yard, is surrounded by several neighboring houses, and is just the right size to have grand kids over during the holidays.  The first component of my ultimate goal  becomes my first long-term goal.  I want to own a paid for house that I can live in after I retire.

Also on my drawing, there are pictures of a golf course, a church, a family-tree, and a vacation home.  Using these pictures, and adding them to the goal of owning my own home, I have now created five, practical, long-term goals.

While I am at it, I’ll prioritize my long-term goals, and list them here -

1. Own My Own Home For When I Retire
2. Share Financial Blessings With My Family
3. Share Financial Blessings With My Church
4. Enjoy Life Through Recreation
5. Own My Own Vacation Home

I’m sure that you can see what I have done here.  I’ve taken my dream, my ultimate financial goal of being financially independent, and I’ve brought it down from “the sky” and given it some “reality”.  Now, instead of one hard-to-define dream, I now have five, concrete, easy-to-define, long-term goals.

Not only have I developed some long-term goals, I’ve also prioritized them.  My reasoning is rather obvious.  I may not have enough money to accomplish goal 5, but I want to be sure that I have enough to accomplish goal 1.  Yes, we want to dream, but we also want to be realistic in our planning.  If the recent economic meltdown has taught us anything, it is that life is unpredictable.  All we can do, in reality, is to create our plans, work hard to achieve our goals, and move forward.  Personally, I am trying to create long-term goals that are realistic, regardless of the state of the economy.

From this post on, we’ll simply take the above detailed process, and learn to apply it to each of our long-term goals, disassembling them and creating intermediate-term goals, short-term goals, and daily-goals.  The process, at each step, is the same.  I’ll also discuss those pesky goals – like paying for our kids to go to college, or buying a newer car – and how those types of goals relate to our long-term goals.

These first few days, we have really been inside our own heads – dreaming, planning, goal setting, and thinking about the future.  Tomorrow, we begin the difficult process of figuring out what we actually have to do in order to achieve, in many cases, some rather lofty goals.

Debt Reduction Book Giveaway -

Don’t forget, as part of this week’s series on Setting Personal Finance Goals, I’m giving away five debt reduction books.  Click over and find out how you can be eligible for a chance to receive your very own free debt reduction book.

Final Notes -

As you list your long-term goals, you may notice that your list just keeps getting longer and longer.  For right now, try to keep your list limited to less than 10 long-term goals.  Tomorrow, I’m going to delve into the difficult task of prioritizing long-term and intermediate -term goals.  For instance – How do we balance college funding for the kids (an intermediate-goal for most) with a long-term goal, such as buying a vacation home?  Right now, create a list of long-term goals, goals for that time in your life usually defined as retirement.

As I work my way through this series, I can actually see it blossoming into a 2-week-long project.  What sounds like a simple topic – setting personal finance goals - is actually a very complex topic, one which fascinates me.  I hope you are enjoying this series, and I really do appreciate all of the positive feedback.

For those who have yet to do so, please consider subscribing to No Credit Needed via RSS or free daily Email.

After reading yesterday’s article about Setting Personal Finance Goals, I hope that you are pumped.  I know I am, and I’m really looking forward to sharing this series with you.

For the purpose of this week’s series, we are going to think big – and then we are going to learn to think small.

I want you to do something for me, and while it will feel quite cheesy, I really want you to give it a shot. Take out a piece of paper – some plain white stock from the printer will do just fine – and grab a pencil.  Now, on your piece of paper, I want you to draw your ultimate future.  Just for the sake of keeping things simple, let’s assume an age between 55 and 70.  (We’ll talk a bit more about the whole age thing in a future article.)

Your drawing can be as simple or as elaborate as you would like, but it should include – where you would like to live, the type of house you would like to live in, the type of automobiles you would like to own, the property your house wold sit on, and the people who might be living with you.  Over in one corner, you might draw the boat you hope to buy, or the golf course you would love to be a member of, or the destinations you would like to visit.  Whatever comes to mind, and is significant, put it on your piece of paper.  Take as much time as you need, and really imagine where you would like to be in your future.  Oh, and for now, imagine that money is no object.

It’s amazing what these drawings reveal.  For some of you, you will be amazed by how elaborate your hopes and dreams already are.  For others, you’ll marvel at how simple, how gloriously ordinary you hope your life will be.  I’ll be honest.  The picture on my piece of paper is kind of… boring.

I have drawn a house, with a simple two-car garage, and a workshop in the backyard.  The house has a pool, and a shaded patio, with some place to cook dinner on nice evenings.  The house is big enough for our three kids, and their future spouses, and our future grandchildren.  It has a massive den, and an equally impressive dining space.  The yard is big enough for a good game of touch football, but no so big as to become a burden to keep up.

On the left-hand side of my paper, there’s a faint sketch of a golf course.  I love the game, but I really don’t care if I ever join a club or not.  I’d just like to play, two or three times a week, with a couple of my good friends.  On the right-hand side, there’s another faint drawing, of a house, or condominium, at the beach.  I would really like to go there, for two or three months each year, just to relax and enjoy the beauty of the ocean.

At the top of the page, is a church.  A bright, functional space, where I can gather with my fellow believers, and worship our King.  I couldn’t imagine thinking about my future without dreaming of what Father might have in store for us, so I just drew a church, knowing that wherever we live, and whatever we do, we’ll always be drawn to a local body of believers.

Near the bottom of the page, I just drew a tree.  This tree represents my family-tree, and the hopes and dreams that I have for my kids, their kids, and their kids’ kids.  For some reason, I gave the tree a name – hope.

See, I told you this could get quite cheesy.  I hope, by now, you see the point of this exercise.  What you see on your piece of paper – that’s your dream, your desire, your ultimate financial goal! There it is, right in front of you eyes, more real than it has ever been.  As simple, or complex, or radical, or basic, or boring, or outrageous as your dream might be, it’s still your dream!

Don’t you understand the power behind what you just did?  Please, do not ignore the significance of your dream.

Do you realize that we are living in the middle of a dream-less society?  People have given up.  They are no longer dreaming.  And when we fail to dream, we fail to plan  And when we fail to plan, we fail to care.  And when we fail to care, we fail to live.

I hope that you are dreaming.  I hope you’ll take your drawing – your beautiful dream – your ultimate financial goal – and place it on your refrigerator’s door, or in your briefcase, or in your purse.  When you feel down, and discouraged, take a look at your drawing.  That’s your goal – your ultimate financial goal.  And that’s what you’re moving towards.

Debt Reduction Book Giveaway -

Don’t forget, as part of this week’s series on Setting Personal Finance Goals, I’m giving away five debt reduction books.  Click over and find out how you can be eligible for a chance to receive your very own free debt reduction book.

Final Note -

I’m sure you noticed, but I really didn’t talk about money, much or at all, today.  That’s because, more money isn’t our goal, more money is simply a means for achieving our goal.  Much more on that, starting tomorrow!

I have a terrible sense of direction.  My wife jokes that I could “get lost going from the front yard to the back.”  You can imagine how thrilled I was, a few years ago, to receive a GPS as a birthday gift.  Now, I can  jump in my car, and safely get from point A to point B, without needless stops at points C, D, and E!

What’s the old saying?  The first step to solving a problem is to admit that you have one.  I had a problem.  I knew that I wanted to be financially independent, but I had no idea how to get from where I was (in debt, broke, and frustrated) to where I wanted to be (free from debt, in control, and at peace).  Admitting my own ignorance was the first step.  Frankly, knowing what you don’t know can be just as empowering as knowing what you do know.

Instead of wallowing in my circumstances and giving in to my frustrations, I set my mind, and determined to do something about my situation.  One of my favorite comedians, the late Jerry Clower, used to say, “There ain’t no shame gettin’ the seven year itch… the shames in keepin’ it.”  There’s no shame in being ignorant, the shame is in staying ignorant.  I started to read everything I could get my hands on about debt and debt reduction.  I read -

• Dave Ramsey’s The Total Money Makeover: A Proven Plan for Financial Fitness

• Debt-Proof Your Marriage: How to Achieve Financial Harmony (Debt-Proof Living) – Mary Hunt

• Debt Free Living – Larry Burkett

• Complete Financial Guide for Young Couples: A Lifetime Approach to Spending, Saving and Investing – Larry Burkett

• Debt-Proof Living: The Complete Guide to Living Financially Free (Debt-Proof Living (Paperback) – Mary Hunt
  

Armed with the information gleaned from those books, I sat down with a piece of paper and outlined my goals for for the future.

I started out with a single, ultimate goal – financial independence.  I then broke that goal down into several intermediate goals, and then broke those intermediate goals into several smaller goals.  I then created a financial road map, my personal plan for achieving each of my personal goals.

Over the course of this week, I’ll be writing several articles about goals, goal setting, and creating your own financial road map.  If you have not done so, please consider subscribing to No Credit Needed, via RSS or free daily Email, to keep up with each post in the Setting Personal Finance Goals series.

Debt Reduction Book Giveaway

To get you started, and to keep you motivated, I have also decided to give away five debt reduction books – winner’s choice from the list above.  There are several ways you can be considered for the free book giveaway – Feel free to enter the giveaway in each of the following ways -

Win By Commenting -

Simply leave a comment below, with either a question or comment about goal setting.  On Friday, I’ll randomly select two winners from all commentors.  Those reading via RSS feed or daily Email will need to visit the site to leave a comment.  Feel free to leave as many comments as you wish, but your name will be placed “in the hat” only once.  Comments take a few minutes to appear.  Spam laden comments will be deleted and will not be eligible for the giveaway.

Win By Tweeting -

You will  need to have a Twitter account, follow me Twitter.com/NCN, and then Tweet the following message – copy and then paste it.

Win Free Debt Reduction Books – Follow @NCN and re-tweet – Details: http://tinyurl.com/anbtct

On Friday, I’ll randomly select a winner from all tweets.  Remember to include @NCN in your tweet, so that I can find it.

Win By Subscribing -

Subscribe to No Credit Needed via daily Email.  On Friday, I’ll randomly select a winner from those who have subscribed via daily Email, so be sure to include a valid email address when subscribing.

Win By Blogging -

If you have a blog, simply link to this article, or any article in the Setting Personal Finance Goals series.  On Friday, I’ll randomly select a winner from those bloggers who liked to an article in the series.  After the winner receives the book, he or she is free to give that book away to their own readers, should they choose to do so.

Details -

Entries will be accepted through 10PM Eastern on Friday, March 13th. I will contact the winners via e-mail and/or Twitter.  Note that the winners will receive their books directly from Amazon, so you’ll have to provide me with your U.S. mailing address (no PO boxes, please) so that I can give it to them. Void where prohibited.  Winners will be allowed to select a single book, of their choice, from the above listed debt reduction books.