College, Goals, Retirement

Thinking About My Financial Goals For 2009

It’s hard to believe, but in just 15 days, it will be 2009.  I have started thinking about my financial goals for the coming year.

Last year, I set some pretty aggressive goals, and I managed to accomplish most of them.  I fully-funded my 403(b) retirement account, my 2008 Roth IRA, and my wife fully-funded her pension plan.  We are still working to fund my wife’s 2008 Roth IRA and ESAs for our kids.

In April, my wife gave birth to our third child, a beautiful baby girl.  My wife is an educator, and she did not work during the months of April, May, or June.  Her income for 2008 was much lower than it was in 2007, due to the time off, so it was much harder to meet out 2008 goals than I had at first anticipated.  Of course, having the new baby also means that we’ll be able to claim an additional dependent, so our tax bill for 2008 should be lower than it was in 2007.

Due to the different timetables for when contributions can be made, it’s hard to create financial goals based on a calendar year.  For instance, all contributions to my 403(b), which are made pre-tax by my employer, must be made between January and December.  Contributions to a Roth IRA or Education Savings Account, on the other hand, can be made from January 1st of one year until April 15th of the next year.  Some of my 2008 goals will be rolled-over into 2009.  Those goals, including funding ESAs for our kids and my wife’s 2008 Roth IRA must be accomplished by April 15th, 2009.

I haven’t created my official goals for 2009, but here’s a preliminary list of things about which I’m thinking.

Retirement –

I know that I want to fully-fund my 403(b) and it’s mandatory that my wife fully-fund her pension plan.

I need to fully-fund my 2009 Roth IRA.

My wife needs to fully-fund her 2008 Roth IRA and her 2009 Roth IRA.

I also have a SEP-IRA, for income earned from blogging.  I’ll make contributions to it, so that I can reduce our taxable income.

Education –

I have three kids, ages 9, 4, and eight months.

I would love to be able to fully-fund ESAs for all three of them, for the years 2008 and 2009.  At $2000 per child, per year, that’s $12,000.

Savings –

One of my long term goals is to pay cash for a new house.  I’m not sure how this goal will fit in with my other goals, but it’s something I’m definitely thinking about.  In fact, I have given some thought to reducing my retirement contributions, for a brief time, in order to bolster my long term non-retirement savings.  We shall see.

I’m going to sit down with my wife, and we’ll discuss our plans for 2009.  Once we have decided what we want to do, I’ll let you know.  When I right my “official” Goals for 2009 post, I’ll include contribution limits and some specific figures.

7 thoughts on “Thinking About My Financial Goals For 2009

  1. I agree that you should try setting very challenging goals, or BHAG’s (Big Hairy Audacious Goals.) As long as I know that they are not impossible to reach, the bigger the goal, the more inspired and excited I become about achieving it!

    My financial goals for 2009 include:

    1. Pay off the $19,000 student loan bill.
    2. After losing the student loans (hopefully late summer/early fall, begin saving for home down payment.
    3. Graduate from Grad School.
    4. Use my personal blog as a pf learning tool while establishing a solid readership.

    I look forward to reading about your official 2009 goals!

  2. I like goals that require you to stretch, I’m working on mine for 2009 right now. I didn’t make some of my 2008 ones, the stock market took care of that! Next year my plan is to set goals the way you have, based on how much I contribute. The balance is a bit out of my control when it comes to investments.

  3. An option instead of temporarily reducing your retirement contributions could be to view some of your Roth IRA contributions as house savings. You can take out your Roth contributions (not earnings) any time, tax and penalty free. Keep maxing out the Roth and it keeps growing without the drag of taxes. When/If you need some of the contributions to pay for a house, you could pull them out and the earnings would still be in the Roth, compounding tax-free until retirement.

    Not the best advice or strategy for everyone. For a super-saver like yourself, though, it might be practical. You seem very unlikely to reduce your savings or go on a spending spree from your Roth money 🙂

    We plan to do this in saving for our son’s college education. We’re house-poor (hoping to sell asap!) so we don’t have as much cash as we’d like to save for everything (actually, much of anything). Our first priority when we have more cash available will be to max out both our Roth IRAs. With one income, it will be a long time before we can save any more than that. Instead of diverting anything to a college fund, we will know that our Roth contributions can be used for college when the time comes, if we choose. We will be in a lot better position to decide how much to foot the bill for our son in 17 years than we are now. It allows us to take maximum advantage of tax savings but still allows us great flexibility. (And we’re also super frugal, so we are truly saving every penny we can whether we have a dedicated college account or not!)

  4. Regarding buying house for cash. I own my home outright and yes, it is a good feeling. But I am also older – among youngest baby boomers. Also when I repaid my mortgage, my rate was 7% – higher than what I could reasonably expect to get on safe investments. I also had a fair amount of savings left after I paid off the mortgage. But for younger people, a lot depends on whether you believe we’ll have any inflation in the next 30 years or so.

    If you believe we’ll have deflation long term, it makes sense to buy a house for cash (or wait to buy it until prices come down more as they likely will). If, however, you believe there’ll be high inflation in future, taking a mortgage at low rates while keeping the money in a bank will actually bring you more money in a long run, IMHO. This is because when the inflation picks up, the value of money you owe will drop while the return on investments, even CDs will likely to go up as the government will raise rates to fight it. When the inflation got to double digits in late 70s and early 80s, government bonds were paying 18% — way above the rate paid by those who took mortgages in late 60s and early 70s.

    I have a couple of multi-millionaire friends. They just bought a vacation home, and they took a mortgage even though they have three times the amount in their brokerage account alone. They are also not rushing to pay off the mortgage on their primary residence even if they could do it easily, but it is at low fixed rate they locked in early 2000s. When they were buying this vacation home I asked them if they plan to pay cash or take a mortgage. They said – we take mortgage because we believe that with all the money being printed we’ll get high inflation eventually, and it makes sense to lock in lower rate rather than spend cash. BTW – these are people who sold all of the stocks in non-retirement accounts in 2006 and bought some short ETFs. They sold ETFs a bit too early just as they sold stocks a bit to early, but they still did a lot better than most of us. Of course, they may be wrong, and we may not get inflation as they think, but it is still something to consider.

    I do believe it still makes sense to wait with buying a home and save more money now as the prices are likely to come down more and the rates aren’t going up until the economy picks up, but even if you have cash to buy a home, sometimes taking a mortgage can be a better strategy. In addition to inflation, there is also a risk of a real emergency. Not just a minor thing like a car breaking down or even a more serious problem like a few months out of a job for which your emergency fund will suffice, but a real emergency like an illness that may cost high 5 digit or low 6 digit amount in non-covered expenses. If you spend all of your savings except for a relatively small emergency fund on a home and then you have a really serious emergency, you’ll have to take an equity loan at whatever rate you can find. This rate may easily be higher than what you can get on a fixed 30 year mortgage when the rates are low.
    Bottom line – there are a number of considerations, and buying a home for cash isn’t always the best strategy.
    Another consideration is that real estate market is cyclical. Now the prices are coming down and are likely to continue to do so. At some point the prices will start to go up again. At this time it would be a good time to buy regardless of whether or not you have 100% of its value in cash or you’ll miss a chance.

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