Yesterday we talked about having your first big financial talk, managing money, and setting a budget. Today, we’re going to look at a more long-term approach to dealing with finances as a married couple.

Setting Goals

Before you ever get married or move in together, you and your partner should have a serious discussion about your financial goals as well as the implications of your non-financial plans and goals. Remember to include any goals you have individually as well as the ones you have together. You may find it helpful to meet with a financial planner or complete financial premarital counseling. Among other things, consider:

• Lifestyle: Do you plan to live a very frugal life, banking 50% or more of your combined income? Or does one of you imagine life on the posh side of town while the other is fine in your current 1-bedroom apartment? Is your income enough to support the lifestyle you dream of? If not, will you increase your income or compromise on some of your dreams?
• Education: Will either of you want to go back to school at some point during your marriage? Will that person work part time, or quit work altogether? Will you save for the schooling before you begin, or count on loans to see you through?
• Housing: If one or both of you own homes currently, will you keep them? Add each other to the mortgage? If you plan to buy together down the road, when will that be and what kind of down payment will you need?
• Kids: Do you plan to have them? How many? Will you want to send them to private elementary or high school? Will you help pay for part or all of college? Will one or both of you want to spend some time at home with them?
• Career: If one of you is not currently happy at work, when is quitting ok? Can you afford for one of you to take a paycut and/or quit if happiness is really an issue? Might one of you want to start your own business?
• Travel: Would you like to take annual vacations? How extravagant do you expect these trips to be?
• Retirement: Does one of you have dreams of retiring by 45? How much are you currently contributing to your retirement accounts, and is it enough to meet your goals? Alternatively, are you overcontributing to your retirement accounts, saving for the future at the expense of meeting some shorter term goals?

3 Steps to Achieving Your Goals

1. Discuss them: As stated above, review your goals as individuals and as a couple.
2. Assign a dollar value and timeline to each: As much as possible, assess the financial implications of each of your goals for at least the next two years. If you plan to buy a $300,000 house in six years, you might need a $60,000 down payment. So in two years, it would be great to have $10,000 in the bank. If you plan to take $2,000 vacation every two years, you need to save $1,000 per year. If you want to move to a larger apartment when your lease ends in six months, you need to save enough for moving costs and a deposit at the new place before that time.
3. Create a plan: Decide how you will pay for your goals. I generally recommend taking the total cost of meeting your goal and dividing it by the number of paychecks remaining until you need the money, then saving part of the total amount each paycheck. Consider opening dedicated savings accounts for your longer-term goals. If you don’t have enough money to save for all your goals at once, you may need to eliminate some altogether, restructure the timing, or attempt to achieve them at a lower cost. For more on an approach to long term planning, see the Your Dollar Plan series.

Going Forward

After you settle in to your new life as a married couple, it will be important to have regular financial checkups. You may want to sit down for 30 minutes each month to review bills, spending, and savings. Make a point of sitting together at least annually to review progress on your initial goals and adjust or set new ones. As your marriage progresses, your initial financial strategy may no longer be appropriate – you should have a talk or series of talks if you experience a sudden windfall, receive a raise or layoff, or decide to have kids and/or that one of you will be a stay-at-home parent. It is important to constantly review and adjust your budget to meet your circumstances. No matter what, remember that marriage is built on trust, honesty and partnership – and that goes for dealing with your finances too!

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1. Asset allocation rebalancing. Have you rebalanced your portfolio lately? With the decline in the market lately you could be overweighted in bonds. With stock prices down, you will be forced to sell your bonds high and buy your stocks low, just like you are supposed to!

2. Adequate insurance coverage. Do you have enough insurance? (Health, Disability, Life, Car Homeowners, Umbrella, and Flood).

3. Long term goals. Have you set long term goals and put a plan together to achieve those goals? No time like the present to work on them!

4. Set aside money for the holidays. Now is a great time to start saving for the holidays. By December you’ll have money ready to go. If you are a bargain shopper, make your lists now and keep your eye out for sales.

5. Use your vacation time. Make sure that you are using vacation. Sometimes people get so wrapped up in work, they don’t take time off. Instead of being forced to use it all at the end of the year, spend some now while the weather is nice. (As I write this… I’m enjoying my 2+ week vacation!)

6. Read your social security statement. Depending on when your birthday is, you may or may not have received your statement this year. When you get it, did you review all the numbers?

7. Tax withholding. Are you making the amount of income you estimated when you set your withholding level? Now is a great time to make an adjustment using the IRS withholding calculator.

8. 2008 reduced capital gains tax. If you are planning on taking advantage of the 0% capital gains taxes in 2008, have you sold your stock yet?

9. Update your beneficiaries. Don’t get caught with an old beneficiary on your account. Make sure your retirement accounts and life insurance policies are up to date.

10. Backup your files. Have you made a backup of your important files?

Do you have additional tasks you’d like to add to the list? Feel free to add them in the comments.

This article is included in: Carnival of Personal Finance #161: The “Feeling Renewed” Edition

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Save for college before children are born. We opened 529 plans for our future children before they were born. Before we had our kids we had much more disposable income. By saving for their college before they were born, we’ve freed up some money now that we have them while still meeting our goals of providing for an education for our children.

Pick the right house for your intended family size. When we built our house two years ago, we knew how many kids we were planning in the next 5-7 years so that we wouldn’t be faced with having to move because of our expanding family.

Plan your financing needs ahead of time. We saved low interest money available for student loans years before buying a house. We didn’t have a need to take out the student loans, but we could secure them at a rate much lower than a potential mortgage, obtaining a form of creative financing.

Address long-term needs early. I opened my first retirement accounts at age 16. The power of compounding will work much harder than starting to save later down the road.

Select a marketable degree. I picked a major in school with good job placement rates and funding for scholarships. I believe in following your heart and doing something you love, but it is also good to keep in mind whether or not you can be fairly compensated for your work.

Align your goals to your finances. Currently we are planning ahead for early semi-retirement by reducing our budget and growing our business money. Follow the series to plan your dollar plan and align your goals.

What have you done to plan ahead?

Find more tips from others who have planned ahead:

• Plan Ahead in job searches Job Hunting Tips for the New College Graduate and How I intend to help my daughters secure jobs they would like – Preparing for the Interview
• Plan your route in 10 Simple Behavioral Changes That Save Gas
• Plan Ahead With Pet Insurance in Reader Question: When High Pet Costs Threaten Your Finances
• Plan ahead for college in Three Tips for More Financial Aid

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It’s a great concept in theory, but let’s put it into action to see if it really works. Here is how we built our finances around the fundamentals.

Applying the Five Financial Fundamentals

Set financial goals. We created our dollar plan which contains our goals for financial freedom. It’s a 14 year plan with 9 years to go. I calculated how much we need to save each year and added interim goals each year.

Communicate. When my husband and I first met we couldn’t have been further apart in financial habits. I was a saver, he was a spender. However, we found a happy medium – he keeps me from saving every single dollar and I keep him from spending too much. We work together to plan our big purchases and discuss our goals frequently.

Commitment and motivation. Most of our need for financial freedom revolves around our kids. We want to be there when they get home from school. We want to travel and enjoy sports. Our financial goals align with those wants. Because they are personal we are more committed to them. For motivation, I update spreadsheets yearly to show him how much progress we’ve made. With My Dollar Plan, the updates are now monthly so we can see how much further we have to go.

Plan for the unexpected. When we started the plan, we knew we wanted to have kids, work part-time, and build a new house. We were sure that we would be surprised along the way, but we didn’t know how or when. Recently we were hit with the cost of preschool which was unexpected, but able to be absorbed into our plan.

Don’t delay happiness. Even though we have our goals and action plan in place, we’ve chosen to do things that set the plan back. We worked part-time and took lots of time off to be with our kids. I didn’t want to look back in 9 years and wish that I would have spent less time earning money and more time with my kids.

What are you doing to put the fundamentals into action?

Article Featured in: Carnival of Money Stories

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Commit to the change.That’s the biggest step. Making a commitment to yourself by stating a goal. Based on our 2008 goals we’ve committed to making a reduction in our budget. One of the big leakage areas of our budget is my car. So here it is… We’re going to sell my car in 2008.

Plan. After stating the goal it’s time to start doing some planning. Most goals are executed more efficiently with a solid plan in place. We’ve started our car planning working on the following items:

• Figuring out what makes sense financially in our budget; how much do we want to save with a replacement car?
• Revisiting my list of criteria in a replacement car and determining if each item on my list is really a need or a want.
• Determining the order of events: Should we buy the replacement car first or sell the old car first?

Research. Once we have some of the planning in place, it’s time to research which car fits my newly improved criteria at the price we want to pay. This phase will take some time as I want to be sure that we’re getting a car based on our needs rather than a car a fall in love with. This is a very different approach for me with vehicles, so it’s not going to be an easy task.

Put the plan into action. If you’re a frequent reader at My Dollar Plan, you’ve probably noticed by now that many of my articles include Action Plans to execute my planning. All the planning in the world comes to a halt if you don’t create action steps to implement your new plan. Here’s my action steps for my car plan:

• Complete planning phase determining financial criteria and needs.
• Complete research phase to identify car that fits criteria and needs.
• Sell the car!

Stay tuned as I document each phase of our search for a new car!

Next up: What is your favorite family car?

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This year, I’m putting together a few more that I’d like to work on. Instead of rushing into them on January 1, I’ve spent some time thinking about each one and seeing how they fit into our overall plans for the year. In addition, we had to make some big decisions before I could see how our finances were going to fall into place for the year.

Since others like Consumerism Commentary and Gather Little By Little are already reporting on how they are doing with their goals, I should probably commit to mine! So here they are.

Our 2008 Financial Goals

1. Meet our 2008 goal in our dollar plan; a 20.5% increase for 2008. Some changes to our finances this year may result in missing the goal. I’ve reduced our contributions so I could work part time for most of the year. In addition, our pension plan is changing this summer, so my cash value will likely decrease. However, I didn’t want to change our plan. I’ve added a secondary goal of putting in an extra $10,750 to make up for some of the shortfall I expect. We’ll tentatively earmark any raises we get to cover that shortfall.
2. Make progress toward the long term goals in my strategy for working. Because they are two year goals, but they will not happen evenly over the two years, I would be happy with meeting a third of each figure in 2008. The two year goals are:
   1. Remove $1170 per month from our budget.
   2. Replace $800 per month in retirement savings. 
   3. Earn $830 per month from our new side business.
3. Replenish our “baby savings.” I’d like to have $10,000 over the next few years. I saved up for my unpaid maternity leave and my 4 day work week through next fall. After I go back to work full time, I’d like to build our savings back up that I used while I was off.
4. Introduce my 2 year old to money. Specifically his piggy bank, our local credit union, and begin teaching him about money. I’ve already begun as we’ve been working on learning the difference between pennies and quarters, filling his piggy bank and taking it to the coin counter at the bank.
5. Pay off part of our credit card arbitrage with extra money. I’m going to treat it as a “debt” in my mind to try to pay it off. If successful, what I’ll end up with is a quarter million dollars in the bank unleveraged! I’ll start by committing $110 per month, for a total of $1,320 during 2008. I’ll add extra money here and there when I come across it. This is really just a glorified savings plan, but I thought if I put a different connotation to it, I might contribute more money to it.
6. Invest additional money through investment snowflaking. My plan will be to split extra money between the baby savings, credit card arbitrage and investments.
7. Work on developing a passive income plan.
8. Updating our asset allocation to include more international funds. In addition, I’d like to optimize the funds for the lowest possible expense ratio by looking at ETFs and admiral shares.

In addition to our personal financial goals, I’ve come up with some goals for My Dollar Plan!

My Dollar Plan Goals

1. Increase earnings. Earn $1,000 per month by the end of the year. In January I earned about $260 from the site. My interim goals are to hit $400 in February and $500 in March.
2. Increase subscribers. Hit 1,000 subscribers by September 1. I included an interim goal to hit 500 subscribers by April 21.
3. Increase visitors. Continue to increase visitors by 10% each month.

Action Plan

To be perfectly honest, I don’t know if I can really pull off all of these in 2008. Some of them have more laid out plans to achieve them, others are still in development stages. Throughout the year, I’ll be writing about how they are going including more of the plans to achieve each one.

This article is featured in the Carnival of Financial Goals at The Dividend Guy.

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Yesterday I highlighted Tax Deduction for Women gathering up the bridesmaid dresses for donations. Today I’m finishing off the closet. Each year at the end of the year, I clean out my closet and donate clothes to Goodwill. While most people have spring cleaning, I have tax cleaning, focusing on getting donations out the door in time for this year’s taxes.

I have a hard time parting with clothes. Even those that I haven’t worn in forever. So I came up with a plan that will reward me for one of the goals that I’m working on: getting 150 readers per day. By this time next week, I want my average daily visitor count to exceed 150.

If the average visitor count makes it over 150, I will donate that many items from my closet! Talk about incentive to clear out all those clothes. So tell a handful of friends about the site! Let’s empty my closet. Let’s empty yours too! Get rid of all those things you never wear and donate, donate, donate.

And it wouldn’t be right if I didn’t mention the 2006 IRS guidelines stating that clothing must be in good condition or better to claim your deduction.

Read the results of the reader goal.

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Offer a place for friends and family to go to get answers to their questions. I spend a considerable amount of time researching and advising people on all money matters. Because the topics often repeat and overlap, I want to point them to this site for their answers. I would like to go through all the folders I have for each person, and post any of the topics that could be beneficial for others.

Make Money. Yes, this is basically another idea on the list of money strategies. It actually was a brainchild of the Dollar-a-day challenge. I have great ideas to offer about personal finance. The goal is to cover the cost to operate the site.

Finally, document and organize all my finance to-dos and ideas floating around. (from del.icio.us, Bloglines, notebooks, newspaper articles, etc.)

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