As we approach year-end, it’s a good time to think about your top money goals. Without goals, you’ll have no plan. Without a plan, your chances of achieving a great retirement are greatly diminished. This article highlights common goals by age group to help you in thinking about your own situation. Also included are steps you can start taking to make progress toward your top goals. Once you’ve prioritized your goals during the month of December, you can target January as your launch date for action, which ties in well with the New Year and it’s inevitable resolutions.
The Top Money Goals
According to this survey by GOBankingRates, following were the top Money Goals in 2015, for the population as a whole, and the percentage of respondents for each:
Top Short-Term Savings Goals
Emergency fund 37%Home renovations/repairs 19%Vacation 19%Vehicle 13%Big-ticket purchase 5%Other 4%Wedding 4%
Top Long-Term Savings Goals
Top Priorities By Age Group
Obviously, your age and life stage can have significant impact on your goals. Below, we’ll look at the top goals by age group, as well as suggestions for how to tackle your priorities in each age bracket:
The Millenials (early 20’s – early 30’s)
Their Priorities: Those in their 20’s identified saving for a car as their top short-term goal more than any other group. The Millenials are also working to build an emergency fund, plan a vacation and were twice as likely to be saving for a wedding. Finally, savings for a family was the top long-term goal.
Less Important: Millenials are least likely to be saving for retirement or an emergency fund. They’re also less focused on debt reduction than any other age group, in spite of 10% of them citing loans as a major obstacle to saving.
ACTION PLAN: Millenials should realize as early as possible in life the importance of living within their means. Focus on getting yourself into a career with the highest possible earnings potential, and spend less than you earn, directing the difference into a 1 month emergency fund as your first step. Next, build your short term funds until you can buy a car without taking out a loan (yes, you should buy an inexpensive car). As you’re building your short term funds, also realize the huge impact that COMPOUNDING can have on long term financial success, and contribute to Roth IRA’s while you’re still in a low tax bracket (contributions can we withdrawn before retirement). Ideally, do this via an employer 401(k) plan at least to the level of your company match. Don’t forgo an employer’s matching contribution, regardless of your situation. Learn to live on a budget, and avoid credit card debt.
Generation X-Y (early 30’s – late 40’s)
Their Priorities: Gen X is the most likely to list home ownership as their top long-term savings goal. With folks delaying marriage, this group had the highest % of respondents identifying a wedding as a short term savings goal. As folks moved into the later age within Gen X, emergency funds became the highest short term priority, along with saving for college costs for their children.
Less Important: Gen X is more focused on the shorter term goals of home ownership and college costs than they are on retirement savings and health care costs.
ACTION PLAN: Gen X must find the delicate balance between saving for their children’s education and building their retirement plan. Don’t sacrifice your retirement to put your children through college. If, like 74% of Millenials today, you’ve made the huge mistake of avoiding the stock market while you were in their 20’s, it’s time to invest in equities while time for compounding is still on your side. Gen X should also seriously consider directing investments into Roth IRA’s while they’re still in their “lower tax bracket” earning years. Consider maxing out any Health Savings Accounts (HSA’s) you have access to if you employer provides a high deductible health plan – these savings can be used toward health costs tax free for the rest of your life. Prioritize the elimination of high cost debt, which will ultimately hurt your retirement outlook. Finally, make sure you have your estate planning documents in order, especially after your children are born.
Baby Boomers (early 50’s – late 60’s)
Their Priorities: Baby boomers are the most likely to list home renovations or repairs as their top short-term savings goal. They were also the group most focused on retirement and health care costs as their top long-term savings goals.
Less Important: During the latter baby boom years, college costs fall off the list of priorities as children have either graduated from college or chosen a different path. .
ACTION PLAN: Once boomers reach “empty nest” status, it’s time to seriously ramp up retirement savings and fully eliminate any high cost debt. Take full advantage of the IRS allowance for catch-up contributions to your 401(k) and IRA accounts. Get serious about your retirement planning at least 5 years prior to your expected retirement date, to allow time to make whatever changes are required to your savings goals while you’re still working. Focus on getting healthy to reduce your longer term health care costs, and max out any Health Savings Accounts (HSA’s) you have access to – the money will carry over tax-free into retirement. Try living on your retirement budget 1-2 years prior to retirement to insure you can maintain your desired lifestyle. Delay taking social security payments as long as possible, as income compounds at an annualized 8% rate for every year you delay (to age 70). Once in retirement, follow these 7 Strategies To Make Your Money Last Through Retirement.
Regardless of your age, there are personal finance steps you should be taking now. Even if you’ve done a good job of managing your finances, there are areas you can, and should, improve upon. Carve out an hour this month to sit down with your spouse and consider the above “hot topics” by age group, then modify as appropriate for your individual circumstance. The important thing is to identify the top 2-3 areas where you need to improve, and put a plan in place to start taking appropriate action steps. Use December as a goal setting period, with plans to launch your new action plan on New Year’s Day!