Financial Goals – How Much By When?

I often advise clients on how to set financial goals. One technique I use is to ask “how much by when?” Answering this question is a good way to put meat on the bones.  It makes your financial goal concrete. The technique also provides an easy way to check whether you achieved your goal.

One tip I use is to try not to make the goal too big. Use a series of small and manageable steps rather than a big goal.  It would be better to establish a goal of saving $500/month in a separate savings account.  Rather than setting a goal of saving $6,000 by year-end. The small steps can be met every month. They will ultimately be enough to meet the big goal as well.

You can use this technique in other aspects of your life. Say you wanted to changes jobs. You can set a manageable goal of having your resume and basic cover letter completed by a certain date. Alternatively you could set a goal of applying for five jobs by March 1st.

You can also use the technique in your personal life. I want a date night every week or I am going to use all my vacation days up by the end of August. The technique is only bound by your imagination.

Below are my three financial goals for 2016 using this technique.

Financial Goal 1:  Re-compete Auto and Homeowners Insurance Coverage by June 30th

I have auto, homeowners and personal liability coverage with one company. I am not sure if it’s the best deal anymore.  A recent Consumers Reports magazine investigation found that loyalty to an auto insurer could increase your premium. The common wisdom is that the more loyal you are to an insurer or vendor, the lower the premium or price.

But this isn’t what Consumer Reports found. In fact it was the opposite. Some insurers have figured out that if you don’t change your vendor for products such as cable TV, they know you are not price conscious. The insurer can then raise your premium knowing that you won’t leave. This technique is named “price optimization.”

Price optimization for auto insurance is banned in Maryland, but not in Virginia or DC. Amica Mutual and State Farm told Consumer Reports they don’t use price optimization. Representatives from Allstate, Geico, Progressive, and USAA declined to discuss price optimization with Consumer Reports.

Moreover, a recent article about homeowners insurance in Washington Consumer Checkbook made me think I may be paying too much for coverage.  They listed several insurers in the Washington DC area and saw wide discrepancies in prices for the same coverage.

With this knowledge in mind, I have set a goal of the end of June of having quotes from nine insurers, with an intermediate goal of having three quotes by the end of March, three more by the end of April and the rest completed by the end of June. I plan to obtain quotes from Allstate, Amica, Chubb, Erie, Homesite, Liberty Mutual, Nationwide, State Farm, and Travelers.

Financial Goal 2:  Automate Monthly Retirement Savings Now

All employees can contribute to two retirement accounts each year:  an IRA and an employer retirement account.   But since I am self-employed, I can contribute to my Simplified Employee Pension Individual Retirement Arrangement (SEP IRA). I would like to have the automation in place by January 25th (the day of the month I have chosen to have the funds withdrawn from the account).

Automation of savings is a proven way for wealth maximization. You set it up and then don’t have to worry about it.

My goal is to fully fund the IRA (which is $5,500 plus $1,000 as a catch-up contribution if you turn 50 or older during the year) in equal monthly installments by December 31st.

The other goal is to fund 75% of my SEP IRA during calendar year 2016 based on my budget for the year. I can true up to get the annual maximum contribution in early 2017 when I file my 2016 taxes.

Financial Goal 3:  Change Passwords on a Quarterly Basis

Although technically not a financial goal, password security is key in nearly everything we do online.  My goal is to change my passwords for my personal email and bank accounts every three months. I have already put reminders in my online calendar to do these simple changes.

So what are your financial goals for 2016?  Use the “how much by when” technique and you will be one step closer to meeting them.

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