Step 1. Set goals that motivate you.

My wife and I are currently planning on our second child. Since we have two smaller cars, an upgrade to something bigger is almost a necessity.

Step 2. Be SMART about your goals.

This goal is SMART because it is:

• Specific: It clearly defines what I want to achieve.
• Measurable: Although a bigger vehicle is the end goal, I have given a dollar figure for what I want.
• Attainable: The goal is very attainable.
• Relevant: As I mentioned in Step 1, this goal is almost a necessity as my family grows.
• Time Bound: I want to save enough money for a bigger vehicle by September 26, 2013, a short 3 years from now.

Step 3. Write them down.

My goal is:

To save $20,000 for a bigger vehicle by September 26, 2013. This vehicle will have to support 2 adults, 2 children (and their booster seats), and a weekend’s worth of luggage.

Step 4. Develop smaller steps to achieve your overall goal.

I have only done minimal research so far for my next vehicle. I do know that purchasing a 5-person vehicle will range anywhere from $16,000 (relatively low mileage, not too old) to… well, to way above what I would pay for a car. I decided $20,000 so that I can give myself options.

Dividing $20,000 by 36 months,  I need to save $555.56 a month. I’m assuming I won’t earn any interest on these savings.

Believe it or not: Even with my retirement goal and my debt freedom goal, I will have room to save for this goal as well.

 Step 5. Stick with it!

As I’ve mentioned, my wife and I are talking about a second child. Trust me when I say: There is no way to put two babies/toddlers into car seats into either one of our current cars. There is definitely no way to have two kids in either of our cars AND include luggage for a weekend trip….

My First Downfall.

One of my goals is to increase my annual income, and one of my sub-goals for this main goal was to start a part-time job. Which I did. I can honestly say that I like(d) my part-time job as a night-time instructor. It kept me on my feet as an engineer and gave me a satisfied feeling, knowing that I am teaching young minds.

The downfall to all of this? Two nights a week, I taught. Another two nights, I read through materials, set up lesson plans, and graded papers. The result? I was tired all of the time! And I didn’t get a chance to spend time with my daughter.

So, before things got out-of-hand, I told them that I was leaving. My expectation was that this part-time job would provide me about $5,000 to $6,000 a year. In exchange for this, I get more “me” time and time with my daughter.

Now all I need to do is find a good income replacement for this. I think the best substitute for this is to increase my annual income at my primary job… by working harder, meeting/exceeding expectations, and taking on responsibilities above my pay grade.

My Second Downfall.

Because of all of the time I spent for my part-time job, I wasn’t able to write as much for this blog as I expected. My goal was to write 15 blog posts by September 30. Thankfully, I will meet this goal. BUT! The motivation behind the goal was for me to establish a regular publishing pattern. Which I missed.

Now that my part-time job is coming to an end, I will have more time to dedicate to this blog.

So that’s what I’ve been doing for the past few weeks…

Step 1. Set goals that motivate you.

Debt freedom is a huge motivation for me. I am only 25, but I have well-experienced the heartaches and misery that come with debt. I vow to never go into debt again.

Step 2. Be SMART about your goals.

This goal is SMART because it is:

• Specific: It clearly defines what I want to achieve: Debt Freedom!
• Measurable: Yep, it’s measureable. My goal is to get to $0 in debt.
• Attainable: It seems like such a long way away, but this is definitely an attainable goal.
• Relevant: Debt freedom is always relevant!
• Time Bound: I want to be debt-free in 11 years and 4 months on December 31, 2021.

Step 3. Write them down.

Goal #3 for me is:

To become completely debt-free by December 31, 2021. This includes my existing mortgage and several student loans, all of which total approximately $197,400.

Step 4. Develop smaller steps to achieve your overall goal.

I used an online “debt snowball” calculator to find out how long it will take for me to be debt-free. First off, here is my debt.

• Student Loan #1: $15,500 at 4.25% (Minimum Monthly Payment: $108.99)
• Student Loan #2: $15,200 at 5.29% ($189.26)
• Student Loan #3: $4,700 at 3.75% ($50.00)
• Mortgage: $162,000 at 5.50% ($1,250.00)

The online calculator informed me that I will be debt-free in just under 11 years, if I can manage to pay $400 above the minimum payments. Since I am currently in debt reduction mode, I am already sacrificing $400 consistently on a monthly basis. If I continue this trend, I will be on my way to debt freedom. Of course, if I am able to contribute more, I will become debt-free even faster.

Step 5. Stick with it!

Debt freedom in just over 11 years will be amazing! This is a goal I will stick with.

Today, I discuss saving. While I believe retirement savings is critically important for everyone to have, I also believe that people should enjoy the lives they have now!

Let’s explore two extremes.

Extreme #1: Saving for later, but not for now.

Joe is saving for his retirement. He is single and makes $30,000 a year. He lives extremely frugally, keeping his expenses low, and manages to save $15,000 a year, even with his income. Joe wants to have millions in his retirement savings. When he does retire, he has plans to travel the world.

Joe continues to live minimally and manages to save $2 million for his retirement. He’s now 54, has $2 million, and is set to retire early. He even planned his first-ever international trip to Paris, France.

Suddenly, however, Joe is involved in a car accident and dies.

Extreme #2: Enjoying now, but not saving for later.

Amber loves to live her life! Her friends save for retirement and never have any extra money to enjoy themselves. Amber is not like that. She’s not worried about retirement. Instead, her money goes to eating out every day and shopping for purses, shoes, and jewelry. Amber makes $100,000 a year and figures she’ll work for all of her life anyways. (She really enjoys her career!)

Amber spends and spends and never saves a dime. She enjoys every day of her life. That is, until she turns 60. Her company feels that she is getting too old. Although she is still a great employee, they let her go.

They give her a year’s severance, but how is she going to enjoy her life now? She doesn’t live her life the same way, has to struggle to support herself, but somehow she manages until she dies naturally at 87.

Split the difference!

Diversifying is basically splitting the difference between multiple options. When it comes to saving, my recommendation is to save for now AND to save for later. For example, my wife and I are saving for retirement. But also, we allow ourselves a decent vacation once a year. Although we would like to travel the world one day, we have opted to travel to various parts of the US for now.

In this way, we get to enjoy ourselves now and will get to enjoy ourselves when we’re older and retired.

Recall that diversifying = reducing risk.

And that is exactly what we’re doing here. You never know what’s going to happen. Like Joe, you could die in a car accident. Or like Amber, you could live for a very long time. You don’t know when you’ll die, so if you (moderately) enjoy yourself now and save for retirement for later, then you’ll be well diversified.

• Setting Goals
• Goal #1: Write 15 Blog Posts
• Goal #2: Increase My Annual Income by 20%

Okay, so if Goal #1 is a short-term goal and Goal #2 is a mid-term goal, then Goal #3 will naturally be my long-term goal. Loosely defined, my long-term goals are my goals stretching past 10 years from now.

This week, I will discuss my retirement goal.

Step 1. Set goals that motivate you.

Retirement is pie-in-the-sky for me. My parents are still to young to retire, but I expect that they never will. Sadly, they will work for the rest of their lives. I am motivated to not be in their shoes. Although I am only 20-something, I look forward to retirement one day. This goal will help me get there.

Step 2. Be SMART about your goals.

This goal is SMART because it is:

• Specific: It clearly defines what I want to achieve, when, and with how much.
• Measurable: Yep, it’s measureable alright.
• Attainable: I have a long way to go, but this is definitely an attainable goal.
• Relevant: Retirement is always relevant!
• Time Bound: I want to retire at 57. Umm, this has a year associated with it as well. But is it really that important?

Step 3. Write them down.

Goal #3 for me is:

To retire at the age of 57 with a savings of $3.3 million. I will allow myself to (and to some extent, I will have to) count taxable savings as a part of this total.

Step 4. Develop smaller steps to achieve your overall goal.

Using an online calculator and backwards calculating, I need to save $22,000 a year to have $3.3 million when I retire. This assumes a rate of return of 8.0%.

Now I will develop some smaller steps.

• Sub-goal #1: Contribute to the annual maximum limit in my 401(k), starting on January 1, 2011. I will utilize payroll deductions through my employer for this. This year’s (2010) limit is $16,500.
• Sub-goal #2: Contribute to the maximum limit in an IRA, starting on January 1, 2011. Set up an account with Vanguard to do this. This year’s IRS contribution limit for an IRA is $5,000.
• Sub-goal #3: Save some extra money through taxable means. I will not set a specific date for this, as this sub-goal is a backup for the first two.

A couple of notes.

The $16,500 for my 401(k) and $5,000 for an IRA only total $21,500 for the year. In this case, I will strive to save additional money into a taxable account. Who knows what the limits will be 10 years from now? They will likely be higher, and I will be able to contribute more. If I can contribute more, then my rate of return does not have to be as aggressive… or I will have more than $3.3 million with I retire. With all of these variables, I will keep things simple and list my sub-goals as I have above.

Although I am married, I have not considered my wife’s retirement savings into account. We will strive to contribute to the max for her accounts as well, but I will not include her accounts in this goal.

Step 5. Stick with it!

I certainly will. Since I have such a long time until retirement, I’m sure numerous adjustments will be made along the way.

This is not a goal, but more a backup plan: If I fail to achieve my goal, I have the option of working part-time during my retirement years. I am too young to know if this will be required, so we’ll see….

Some last comments.

Much like my last post, the $3.3 million figure seemed like an awfully high goal. But once I developed my sub-goals in Step 4 and ran some calculations, the $3.3 million goal is right on target. If I am able to contribute to the maximum, beginning in 2011, I will reach this goal fairly easily.

I was admitted to the emergency room and later stayed for about a day at the hospital for blood work and testing. Eventually, I was told that I had pericarditis, most likely from a virus I had during the previous week.

A few prescriptions and a week later, I am doing perfectly fine. I am well enough to continue to blog!

What this blog post will not discuss.

You may read the subject and think I will discuss medical advice. Or that I might give you options for what doctors to see and when. But this is not the case. I will not (and legally cannot) advise you when to see a doctor and for what reasons. What I will discuss if how to deal with the bills when you are doing okay.

What to do.

If you make a trip to the emergency room, realize that it ain’t cheap! First off, don’t worry about your finances until you’re taken care of and have fully recovered.

Second, once you’re fully recovered, you’ll want to contact the hospital and make sure that they have your insurance information. During my emergency room visit, everything was so hectic, that I did not provide this information up front. Keep in mind that the hospital itself may send you a bill as well as the doctors, blood lab, x-ray radiologists, etc. The hospital will tell you who you can expect a bill from. Make sure that all of these other entities have your insurance information as well.

Third, wait for your bills to come in. If you have insurance, you might have to wait for the second round of bills to come in, since you’ll have to wait for insurance payments first. (I am currently at this step and am waiting for high-$$$ bills to come in…)

Fourth, check and double-check that the bills are correct. Make sure that all of the lab tests listed and number of hospital day stays are correct. Question your insurance company about what was paid and how much you owe.

Fifth, in the end, you’ll have to make payments.

What are your options for payments?

In my situation, this emergency room visit is a one-time thing. If you regularly have medical issues, you’re situation will be different than mine.

But if you expect this emergency is a one-time thing, you can use money in your emergency fund to pay the bills. In my book, medical emergencies qualify you to touch your emergency fund.

On the other hand, hospitals (and doctors, radiologists, etc.) have more flexible billing schemes than student loan or mortgage companies. I don’t know how much my bills will total, but I do not feel that my emergency fund needs to be raided. Instead, I will likely work out a payment plan with the hospital. They are usually flexible enough to work with you and would agree with a reasonable payment option. And they’ll charge you 0% interest to boot!

So for example, suppose you have a $1,200 bill after all is said and done. Evaluate your financial situation and see where you can cut back. Set up a payment plan; let’s say $100 for 12 months. Talk with the hospital to see if this is acceptable. You’ll be surprised that they’ll allow you to do this and, again, at 0% interest.

If you have the option, don’t raid your emergency fund first. Instead, work with the hospital to set up a payment schedule.

• Setting Goals
• Goal #1: Write 15 Blog Posts

Goal #1 was a short-term goal for some immediate success. This week’s goal is a mid-term goal. There’s not a finite deadline that describes “mid-term.” If anything, mid-term will depend on your age and where you are in life. For me, as a 20-something, mid-term goals are goals that you want to accomplish in, say, 2 to 10 years. Obviously then, “short-term” would mean anything less than 2 years, and “long-term” anything past 10 years.

Onto this week’s goal, again following the steps in my “Setting Goals” post.

Step 1. Set goals that motivate you.

This goal is all about increasing my annual income. Let’s face it, I would like to make more money. The motivation behind making more money is to increase my ability to give and to save. In order to achieve this goal, I will also have to work extra hard at my primary job, put in extra effort with this blog, and work a second job.

Step 2. Be SMART about your goals.

This goal is SMART because it is:

• Specific: Again, this goal is sweet and simple. It clearly defines what I want to achieve.
• Measurable: My goal is to increase my annual income by 20%. Here, I identify a specific percentage.
• Attainable: I have multiple sub-goals, all of which I hope to accomplish in order to accomplish my main goal.
• Relevant: Making more money is always relevant!
• Time Bound: I am shooting for September 5, 2013, 3 years from today.

Step 3. Write them down.

Goal #2 for me is:

To increase my gross annual income by 20% by September 5, 2013. All of my extra earnings will be used for giving and saving. None of the extra earnings will be used for lifestyle inflation.

Step 4. Develop smaller steps to achieve your overall goal.

In order to get a 20% increase in 3 years, I will need to increase my income at a rate of 6.25% a year.

(Just as a side note, since I’m dealing with percentages, it doesn’t matter what my current annual income is. The numbers all work out the same way. For those curious, I make $63,720 as my base, gross annual income.)

Now, for some smaller steps to achieve my 20% goal. All-in-all, I will increase my income by getting a promotion at my primary job; working a steady, well-paid second job; and blogging on this site and possibly a few more.

• Sub-goal #1: Work a second job that will provide a ~6.25% (~$4,000) increase in my current income. Identify this job and begin working by September 5, 2011, at the latest. Additionally, part-time at McDonald’s does not count. I will need to find a meaningful job that will improve myself, my life, or my career.
•  Sub-goal #2: Get a promotion at my primary job by September 5, 2012. Negotiate a pay increase that is at least 6.25% ($4,250) of my primary and secondary incomes. This is the most difficult sub-goal to achieve since it is hard to predict when or if upper management will offer promotions. Obviously, I won’t just sit around and wait for this to happen: I will work harder, meet all of my project deadlines, and volunteer for projects above my pay grade. There’s no standard pay increase, but 6.25% is fairly modest with promotions.
•  Sub-goal #3: Establish a regular income stream through blogging resources by September 5, 2013. This blogging income will be ~6.25% (~$4,500) of my primary income (after promotion) and secondary income.

A couple of notes.

I am basically finished with sub-goal #1. I will be doing some nighttime instruction. I get paid per class, so income is likely to change throughout the year. I can expect probably around $5,600 a year, though.

I do have some expectations that I will get cost-of-living allowance at my primary job. We have not received COLA in the past few years, but this should come back sooner or later.

Step 5. Stick with it!

Again, this step is part of the on-going process. I’m certainly motivated enough to stick with my goal.

Some last comments.

When I originally wrote this goal, 20% seemed like an awfully high goal. But I started to develop my sub-goals in Step 4. I realized with income coming in from multiple sources will make this goal must easier to achieve. Twenty percent still seems high, but I think that it is a very realistic goal for me for the next 3 years.

Also, this is exactly why we develop sub-goals. A seemingly insurmountable goal is made easier by establishing smaller steps that are each attainable.

But what exactly is an emergency fund?

Don’t let the term scare you. An emergency fund is just a bunch of money that you keep somewhere safe.

Why even build one?

Emergency’s happen. And they happen more often when you aren’t expecting them. Say your car breaks down and you need $3,000 to repair it. Where is this money going to come from? If you don’t have it already saved up somewhere (like an emergency fund!), then you’ll have to borrow it, take out a loan, or put it on your credit card.

Well, where’s somewhere safe?

Not under the mattress, if that is what you’re asking! Keeping physical dollar bills hidden in a physical location is a dangerous thing. There are thieves out there! Also, if you keep your money under a mattress, you could lose that money in a flood or in a fire.

Arguably, the safest place to keep your emergency fund money is in a bank that is FDIC insured (or in a credit union that is NCUA insured). This way, you don’t have to physically keep your money around. Thieves and fires can’t take away your stash. And also, if a bank fails, your money will be federally insured, so you’re guaranteed to get it back.

Another thing: If you’re going to have money sitting in a bank account, you might as well have it earn a little bit of interest for you. My recommendation is to use an online savings account to stash your emergency fund. The interest rates for online savings accounts are much better than what a brick-and-mortar bank can offer you.

Okay, let’s back up! You said “a bunch of money.” How much?

“Experts” say that you need 3 to 6 months of expenses, some even say as high as 12 months. For example, my monthly expenses are about $4,500, so I would need anywhere from $13,500 to $27,000, up to as much as $54,000. I am personally building an emergency fund for $28,000.

Really though, you’ll need to evaluate your own financial situation. Think about what would happen if an emergency happened to you. If you are a 2-income household with 4 children, you may fear that you’ll lose both of the incomes. In this case, you might shoot for a larger emergency fund. If you are in a 2-income household with no children, and one of the jobs is *extremely* stable, then you might have a smaller emergency fund. There are really too many examples for me to go through.

So, while personal financial situations may be different, I agree that 3 to 6 months of expenses is a good rule-of-thumb.

$28,000?! I can’t save that much money!

Well, you’ll have to start smaller. Build a $1,000 emergency fund first. And I’m not saying do it all in one shot. If you can manage to save $6 a day for 6 months, you’ll have $1,000. Believe it or not, you can manage to save $6 a day!

Once you’re built a $1,000 emergency fund, increase it to one month’s of expenses, then 3, then 6.

It’s taken me a year and a half to get where I am, about $9,000 in an emergency fund. I am still building it and hopefully will have all $28,000 by the end of 2011. But I really had to cut back my expenses. I stopped eating out for lunch during work; I bring in a sandwich or last night’s leftovers. I switched auto insurance companies. The money I saved there is going directly into my emergency fund. There are ways to do it!

You talked about losing both incomes being an emergency. What else counts as an emergency?

Well, this one is hard for me to define generally. I know what I consider emergencies. What I consider emergencies, though, may be different than your consider emergencies.

Really?! That’s not an answer! C’mon!

Okay, okay. To get you started, I consider these emergencies:

• Loss of a job.
• Loss of a life. This doesn’t just mean you or your spouse. Your distant cousin from half way across the country may die. You’ll need an emergency fund to buy a plane ticket to attend his funeral.
• Loss of major body parts (legs, arms, eye).
• Unexpected car repair. Expected car repair doesn’t count.
• Unexpected home repair.
• Major, unexpected hospital expenses.

 What do not count as emergencies:

• Expected car repairs. Shocks, struts, and timing belts all eventually fail. These need to be budgeted for.
• Expected home repairs. Again, same idea, water heaters fail, but you need to plan for these.
• Regular hospital expenses.
• Planned/scheduled layoff from a job.
• New clothes for a job interview.
• A new surround sound system and big screen TV.

Okay, I got it. I need to building an emergency fund, save the money in an online savings account, and have 3 to 6 months’ worth of expenses. Then, I can only use this money if I have a real emergency.

Yep!

The weird thing is… Two of the family members have my and my wife’s names (first and last). So, all week, people have been congratulating me on my win. As if! If I won the lottery, I would not be dressed in a thrift-store polo and khakis.

But then I thought to myself, would I really be that snobby?

What would I do if I won the lottery?

Since my head is on straight, I would make sure that all of my debt is paid off. So, part of that $2M would go towards paying off the mortgage and student loans ($197k). Then, I would donate about $175,000 to my church.

I would place the remaining $1.628M into 8 different CD’s. (Yes, I would use an ultra-conservative investment like a CD!) Even with a rate of 1.2%, I could “withdraw” $3,000 a month and have the money last for 60 years! (We are talking CD’s, so I would actually withdraw that much a month, but it would be roughly equivalent based on the CD term.)

The key here is that I would continue to work. I might not stay at my current job, but I would still pull in a steady income from somewhere. With money coming in from my job and from the lottery winnings, I would still max out my retirement savings.

There would be a bunch of money left over that I could buy a nicer, bigger house… buy some new cars… and travel the world.

(Yeah, it’s a little boring to say that I would pay off my debts with my lottery winnings and that I would continue to work. But hey, that’s just the person I am. Of course, I would be a little more relaxed with money and enjoy life!)

How about you? What would you go if you won $2 million?

Step 1. Set goals that motivate you.

This first goal is designed to help me out with this blog and help to motivate me to work regularly with DYL. I’m unsure how many posts other bloggers write every month or week, but this goal will establish my own rhythm for posting frequency.

Step 2. Be SMART about your goals.

Recall that SMART goals are:

• Specific
• Measurable
• Attainable
• Relevant
• Time Bound

This goal is SMART because it is:

• Specific: Although sweet and simple, this goal clearly defines what I want to achieve.
• Measurable: I want to write 15 blog posts. More is great! Less is unacceptable.
• Attainable: There is very attainable, especially, by the deadline I’ve set for myself.
• Relevant: This goal is extremely relevant: It will help me to establish this blog and motivate me to write for it.
• Time Bound: I am setting a deadline of September 30, which gives me 33 days to write 15 posts.

 Step 3. Write them down.

My first goal is:

To write 15 blog posts for “Diversify Your Life” by September 30, 2010. These posts will not be “filler” posts, but unique, quality posts that are beneficial to the general reader community.

This is simple enough for me to attain, but is important because I am a new blogger. I need to establish a normalcy with writing. The goal is very specific and measureable. It’s relevant to what I’m doing and has a set deadline.

Step 4. Develop smaller steps to achieve your overall goal.

My next step is to break down this goal and identify how I can achieve it on time. I have 33 days to write 15 posts, which means I need to post a blog about every 2 or 3 days. Really, this means I need to write 3 or 4 (closer to 3) posts a week. So, my sub-goals will include:

• Sub-goal #1: Write 1 post per week as it relates to my own personal financial situation. I will publish this post on either Tuesday or Wednesday. This sub-goal will be restricted by the deadlines and criteria of the main goal.
• Sub-goal #2: Start a series about developing a budget. I will publish 1 post per week on Thursday or Friday. Although deadline is set for September 30, I will likely continue to write this series beyond September 30.
• Sub-goal #3: Establish 4 more goals for my financial future. These goals will be posted on Sundays until September 30.
• Sub-goal #4: Whenever possible, write a post about an “open” topic. This is a backup sub-goal, just in case I have not written 15 posts with sub-goals #1-#3.

 Step 5. Stick with it!

This step is part of the on-going process. I will definitely stick with this goal. I am also aware that I may misstep with my sub-goals, but I will overcome these obstacles to achieve my overall goal.