Thursday, May 17, 2007

ADA: You Need a Goal

Alternate Dimension Andy (ADA):

I think we may have gotten a bit ahead of ourselves, here. I mean, I'm telling a starving man how to cook a steak. What the hell good is this stock market info if you're still spending most of your excess money on debt? (You are doing that, right?)

It's just a road map, ADA. Please calm down. Lower your voice.

I'm telling you about these things 'cause the more you know about them now, the better you'll be able to make good decisions now.

Still, I've put the horse before the cart, taught you to run when you were still learning to crawl, and subjected you to a host of other cliches. I have to give you a clearer road map so you can understand why you should give a shit about the stock market.

You need to do two things today:
  1. Determine what your ultimate goal is in the arena of personal finance.
  2. Plan for that goal.

Very Exciting Example

It is my goal to retire by the time I am 55 with enough money in savings that I can earn my pre-retirement salary for the rest of my life. How do I plan on doing this?
  • First, I will aggressively attack my debt. By putting a little extra into my student loan payments, I aim to be debt free within five years.
  • Meanwhile, I will invest as much as I can into my 401(k), making sure I'm taking full advantage of my company's matching plan.
  • Once my debts are paid off, I will take the money that would have once gone into paying off my loans and invest that into my retirement and savings.
  • I will also set aside a little bit extra from every paycheck which I will use to invest aggressively. This, of course, after I've maxed out my yearly contributions to all of my retirement plans.
Some things I'll do that will help:
  • When I need a "new" car for myself, I'll buy a used vehicle and pay with cash. If I can live without a car, I will.
  • When it comes time to buy a house, I'll pay down at least 20%. I will pay off my house as quickly as possible, paying off at least an extra $100 a month beyond my minimum mortgage payment. I will not buy a house until my student loans are paid off.
  • I will go to graduate school to increase my earning potential (and [just as importantly] to get a better job in the field I love). I will bend over backwards to find funding for grad school: fellowships, scholarships, etc. I will not go to graduate school until I've paid off my undergraduate loans.
  • I will stick to my spending plan. This is not negotiable.
  • I will encourage my wife to save aggressively as well. We will both live simply and never beyond our means.
  • We will not have kids unless they are free. (Yes, I'm kidding. We won't have kids unless someone pays us.)
  • If I can get a job at Google, where they'll match up to 60% of your annual paycheck in your 401(k) plan, I will do that.
Some reality checks:
  • As far as being debt-free within five years goes: I can wish into one hand and... Damn, I'm just full of cliches today.
  • Aggressively saving for retirement might not actually work if I'm not taking home enough to pay my rent.
  • Waiting for grad school 'til loans are paid off: not sure that's necessary. It might even hurt me, since I'd be missing out on a couple years of higher earning potential.
  • My wife doesn't like being convinced. She is the boss, you see.
  • Kids are -- I was surprised to learn -- somewhat expensive!
  • Google does not give jobs "all willy-nilly." Indeed, there is very little willy or nilly involved in their recruitment process. That's why it's such a super-awesome place to work; they want the best and the brightest to want to stay with them. Still... a boy can dream.
So, ADA, I'd like you to do something similar for yourself. If you have a blog, we could even call this a "meme!" True or false: this is exciting enough to make your genitals tingle.

Me too, man. Me too.

No comments: