Goal Setting

As you plan your spending, you must decide what’s most important to you.  That includes defining and writing down your goals.  Goals are specific outcomes you strive and work for.  They are different than dreams or “New Year’s Resolutions.”

Your goals are based on your underlying values.  For example, if education is something you value, then your goal may be to have your children attend college. This goal may then guide your financial decision-making, leading you to begin a savings plan to provide funds when the children reach college age.

Goals can change as your interests, income, life-style, and personal circumstances change. For example, if you get laid off from your job, you will probably set aside some less-important previous goals, at least temporarily.

The first step is to identify your goals – or what you want to get done.  Some goals are short term – this week, this month, or this year.  Examples of short term goals might be:  buying enough groceries for the week; buying shoes for your children; or getting a new coat.  Some are for later – one to 3 years – such as paying off your credit card debt.  Other goals are for the future – perhaps 5 years and beyond – and might include saving for a college education for your children or buying a house. Any goal that takes five years or longer is known as a long-term goal.

To be successful, goals should be SMART:

  • Specific – This is what you plan to do.
  • Measurable – You should be able to tell if you are achieving your goal.
  • Agreed Upon – “This is something everyone in our household agrees should be done”.
  • Realistic – Goals fail if they are not realistic or achievable.
  • Timed – Goals should have beginning and ending dates.

Try your hand at writing a SMART Goal.

Susan

Susan Taylor

Resources are important whether you are looking to rent your first apartment, pay your bills, buy your first home or send your child to college. There are many ways to save money to reach your goals, and hopefully ISU Money Tip$ will be one of them. I enjoy traveling, needlework and am a novice gardener.

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3 thoughts on “Goal Setting

  1. One of our goals is to pay off the mortgage sooner. We have been making extra payments each year for several years. We have now saved enough to pay off the balance of our loan. We are not earning much interest on the saved money, but our variable interest loan on out mortgage is very low, also. Now I am thinking about the tax deduction we will no longer have. Is there any advantage to NOT paying off the mortgage now?
    Kristi

  2. I have seen it both ways. In my previous house, I had paid off the 15 year-loan in about 12.5 years. It freed up the money that had been going to mortgage payments, which I then used to put on a new roof, update the kitchen, new AC. Alternatively, I could have taken out a home equity loan to do the improvements — giving me that tax deduction.

    Extra payments will lower the length of time on a 20 year mortgage loan by typically about 7 years. The extra payments all go to principal, which lowers your on-going interest costs.

    If you want to be free of debt, paying off the mortgage is a good thing but as with anything else, there are consequences – no tax deduction for the interest paid. As you get closer to the end of the mortgage,you are already paying less interest — that means the loss of the mortgage interest tax deduction will have less impact too.

    I also looked at another person’s point of view, for what it is worth:
    “It depends. I have listened to the experts for years debate this topic and in the end it all comes down to a very personal decision that is not solely based on dollars and cents and returns on investment. At the end of the day, I have seen very smart people choose both sides: some to pay off a mortgage and some to continue to pay ‘normally.'”

    Paying off a mortgage early isn’t a matter of making the “right” decision — it is most often a matter of personal preference.

    No matter what the experts tell you.

  3. Here’s another angle, Kristi! Take a look at your 2011 tax return and see what the figure was for your itemized deductions. Keep in mind that the STANDARD deduction for a married couple filing jointly is $11,600. (Federal return)

    Suppose your Itemized Deductions were $12,000. That means your taxable income is only being reduced by $400 when you itemize. Ultimately, that reduces your tax bill by perhaps $60-$120, depending on your tax bracket.

    If you SPENT $1,000 in mortgage interest last year, and it gave you a tax benefit of $100, was that a good trade-off?

    I know – you also saved some money on your STATE taxes. We could figure that out, as well. The bottom line, though, is that you spend more on interest than you gain in reduced taxes.
    – Barb

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