Setting Financial Goals & Making a Plan (simple spreadsheet included!)

Setting reasonable goals is an important part of financial planning. However, many people struggle with determining what constitutes as “reasonable” and end up with stupid goals instead. We all have a tendency to dream big without actually planning or executing big, but there’s a way to stop setting yourself up for failure. I find shorter timelines are the answer to making and achieving goals. A short timeline necessitates a reasonable goal as well as provides a sense of urgency.

Below is a chart I regularly use in my own financial goal setting:

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Because I’m often managing multiple goals, I like to track them in one place so I know how much reaching for all of them will cost me — otherwise it’s so easy to think “I’m only saving $50 for this per month!” but if you’re doing it for 6 different goals you might end up feeling financially strapped.

Want the table for yourself?

I made the table using NUMBERS for Mac, but wordpress is currently not letting me upload the document. However…

Click here to download the EXCEL version!

Now I’ll walk you through it. The first thing you want to do is put in what you’re saving for, the interest/return rate on that account, what you currently have saved (it’s ok to set to $0!), and how much you plan to contribute per month.

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From my example you can see I’m starting with $6,000 and plan to save $604 per month (note: not real numbers!). The table will auto-populate with the data changes based on your inputs, but we’ll revisit that in a sec. The next step is to set your goals for each account by inputing them at the bottom of the table:

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Now the table might be doing wonky things based on how I’ve manipulated the formulas in each cell. Here’s what’s happening:

If you’re not saving enough each month for one of your goals, the “gap” cell will turn red and display the amount you’re short of this goal. In this example, I set the monthly saving of the Emergency fund to $80 a month, and now there’s a $25 gap between my goal and the amount I will actually finish with at the end of 24 months:

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$80/mo is not enough to save in order to meet my goal of having $3,000 in my emergency fund at the end of two years, so let’s say I increase my savings rate to $82/mo by changing the monthly contribution at the top of the table:

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Two things happen as a result: the number in the Gap row is now green, indicating that I’ve over-saved by $23 and some of the cells in that column have turned green:

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From the green-colored cells I can see that I’ll have met my goal. Always nice to be ahead of schedule instead of behind!

If I want to use this table for tracking my savings as well as planning, I edit the values in the appropriate cell at the end of each month. For example, when I click on the cell for January, the formula is as follows:

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But if I actually had $1,100 in that account instead of the $1,083 the table predicted, I will change that and enter my value:

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The rest of the table will auto-populate with the new calculated values:

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This way, you can go in to the table at the end of every month and enter in your new value and it will update the rest of the cells accordingly, and you’ll be able to see right away if you’re on track, behind or ahead of schedule — and you can adjust your monthly contribution accordingly.

Happy Saving!

Saving $100,000 in my RRSP by Age 33

Now that I’m employed full-time again, I’ve revisited some goal setting in my savings. One of my main focuses (which seems to be intensifying as I’m getting older!) is saving for retirement. I like accumulating lots of retirement savings, not just for the security in my future old age, but also because of options like the First-Time Homebuyer’s Plan, which would let me withdraw up to $25,000 from my RRSPs for a down-payment on a home. Still, the primary goal of my retirement savings is net-worth building. These are long-term investments that I don’t plan to withdraw from for decades, but make me happy now to see a big balance on my personal net worth sheet!

Because my income is primarily from blogging and now a summer internship, I’m still not totally sure what my total income will be for this year, but I’m guessing it will not be high enough to be favourable tax-wise to contribute to my RRSPs. Consequently, I’m directing my savings to my TFSA, even though in my mind it’s still ear-marked for retirement. I can always transfer the extra savings from the TFSA to RRSP if I need the tax advantages in future years and/or continue to contribute a little bit to my RRSPs and claim the deduction later. My primary goal in the next 2 years is to max out my TFSA, and then focus on maxing out my RRSP.

I would like to have saved at least $100,000 for retirement by age 33.

Originally, I thought age 35 but since I’ll be about half-way to $100K at age 30 after only saving for 5 years, it doesn’t seem reasonable to expect less savings success in the 5 years following my 30th birthday! I think age 33 is a short enough time away (5 years) to be challenging but still doable. I’m actually hoping to exceed it, but I don’t want to sacrifice other financial goals for it so middle ground at $100K seems just right! As far as past and current progress though, this fits in just right:

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my retirement savings plan & progress (low savings rate for age 27 & 28 because I’m currently an MBA student!)

I made the savings right slightly more aggressive in later years for 2 reasons: 1) it’s more likely than not my income will be higher as I age and 2) as I save more money, more interest & dividends are earned each year helping me reach my goals faster. I’m hoping when I finish school and work full-time as a salaried employee again, I find an employer with a retirement matching program of some sort too!

Currently my retirement savings is comprised of cash savings, a mutual fund, and stocks in this proportion:

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While I love investing in the stock market in order to get a higher return on my money, as years go by I will want to reduce the risk in my retirement assets so I’m expecting by age 33 the distribution will look more like this:

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I’m not sure if I’m totally on board with having $15,000 of cash and $20,000 in mutual funds lying around — right now I’m hungry for more risk than that. Furthermore, because the stocks have higher returns, that account is growing faster than my other investments and I can’t really wrap my head around saving more as cash rather than buying more stocks, but that’s what I’d need to do to get this pie. Nevertheless, designing a rough framework gives me a bit of an idea of where and how to save.

The main component of this plan is just being disciplined enough to grow my retirement savings by $12,000+ per year, and the main risk is market fluctuations since the bulk of my savings is in the stock market. 

Saving $100,000 for retirement by age 33 is attractive for a number of reasons, namely that banking six-figures so early gives the nest egg a number of decades to grow before I need to make any withdrawals.

$100,000 invested at age 33 returning 5% will grow to nearly $500,000 by age 65 without any further contributions.

As per usual, I’m always advocating shortcuts, and I can’t think of a better one than getting six-figures into your retirement savings in your early 30′s!

Your Wealth-Building Cheat Sheet

I know some how-to posts are tiresome for the PF community, but sometimes it’s important to share old information in new ways for readers who are just getting started on their journey to wealth. Some of my friends and acquaintances have mentioned my blog has encouraged them to start saving & investing, but still don’t really know where to get started or where they want to end up.

I’ve created some simple tables to act as a “cheat sheet” for what kind of savings you need and where to keep it, as well as what investment vehicles you should utilize.

What kind of savings you need + in what accounts

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Explanations:

Your Emergency Fund should represent 3-6 months of essential expenses. You should keep this in a TFSA or unregistered accounts since these will have no tax repercussions if you withdraw the money.

Your Retirement Savings can be kept in any type of account, but more likely than not it’s in your best interest to max out your TFSA, then max out your RRSP, and then use an unregistered account for retirement savings.

Savings for school or a down-payment on a home can be kept in any account, but your TFSA is the best option followed by an unregistered account. The least desirable option but an option nonetheless is your RRSP, which allows you to withdraw up to $20,000 for school or $25,000 for a down-payment on a home.

Savings for a wedding or any other savings such as for a vacation, car, etc. should be kept in a TFSA or unregistered account to avoid any taxes when you make a withdrawal.

What types of investment vehicles you should utilize for each of your savings goals

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Explanations:

Your Emergency Fund needs to be liquid and readily accessible, so it should ideally be kept as cash but is also safe as a GIC — though you forfeit the interest rate of the GIC if you withdraw the money before maturity.

Retirement savings should be diversified across all types of investments, with the focus on investments with slightly more risk (like stocks) in your 20′s and gradually becoming more heavily weighted to less risky investments (like mutual funds, GICs and cash) as you near retirement.

Savings for school or a down-payment on a home should be in cash or GIC, but mutual funds are also acceptable if you’re not planning to go back to school or buy a home until 2 years from now or longer.

Savings for a wedding or anything else you plan to purchase in 2 years or less should be kept in the least volatile investment vehicles, like cash or GICs.

What investment vehicle you choose for any other savings depends on what that savings is for and its timeline! Savings you need to access in 2 years or less should be kept in cash or GICs. Savings for 2 to 5 years can be mutual funds, and for longer term investments for 5 years or more, common stocks, bonds, and ETFs are great options.

Ultimately what you save for and how you do it is up to you, but this is a simple breakdown for the new saver or investor!

Nothing is going to “work itself out”

Rant alert. I can’t be the only person who has heard the following from financially irresponsible people –

“I’m just living my life, the money thing will work itself out.”

Other variations include — “God will provide” and “Everything works out in the end”.

Just…no.

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First of all, the money thing is not going to “work itself out” without any effort on your part. Otherwise, why would ANYONE put any effort towards becoming financially secure? And you know what? A lot of things don’t work out in the end. The end is going to suck for those who aren’t ready for and/or extremely lucky. And if you believe in god, how are you possibly self-involved enough to think paying for your data plan is his top priority? C’mon, really?

In the end, there is exactly one person who can fix your financial situation, and that’s you.

Sure, you could pay other people to deal with it, but your personal interests will never be a priority over theirs. The government is not coming to save you, it can’t even take care of itself, so depending on its assistance on a long-term basis is not reasonable or intelligent in the least.

Your parents have absolutely no responsibility for your adult self, and if you mooch of your friends long enough, they won’t be around either. Your spouse could leave you tomorrow. Even worse, he or she could die. Your boss could let you go right now (especially if you are reading this at work). There is absolutely NO ONE in the world who is guaranteed to help you out when shit hits the fan.

I know this sounds pessimistic, but I swear I’m an optimist. I’m also striving to be a realist, which is more important than pessimism vs. optimism. Reality can be a scary place, I know. But facing it is crucial to your long-term financial well-being.

So now that we’ve gotten the reality check over with, let’s deal with this new reality. What do you do to insure yourself against the possibilities that could otherwise derail you completely?

Have skills. If you don’t have them, learn them.

Provided you aren’t the breadwinner in the family, what would you do if something happened to your spouse? What would you do if you got laid off?

Do you have a college degree?

Do you have skills that cannot be outsourced (manual labor, etc.)?

Do you have work experience either in a traditional office setting or through volunteering?

Know how to do something and keep up with your training, just in case you need it.

Diversify your income. Your job is likely your primary source of income. For many people, it’s actually their only income source. But what if you lose your job?

Do something on the side. Use those skills we talked about. Freelance. Do shit people don’t want to do. Make money working outside of your 9 to 5.

Even better, make money passively. Invest in dividend producing stocks. Become a landlord (which is technically considered “passive income” even though it isn’t). Make your money make money that you can tap when you’re in a bind.

Don’t spend everything you make. The amount you HAVE to spend each month should be significantly less than what you are bringing in. Feel free to spend more than what your needs require, but have the ability to cut your spending way back if necessary.

What do you do with the money you aren’t spending? Make it work for you! Provided you have an adequate emergency fund and/or checking account buffer, get the rest of those dollars making money immediately. Obviously, you should save for retirement, but non-retirement investments are important as well. After all, you don’t want to ever tap your retirement funds until you can do so without penalty.

Nothing is going to magically “work out” for you.

You need to care enough about your future self to make sure he or she is provided for if the worst case scenario went down. I don’t know about you, but I would be SCREWED if shit hit the fan right now. That’s why I’m actively working to put my current and future self in a better position.

Not Just Another Emergency Fund Post

Let me start this out by saying, I hate emergency funds. Not because they aren’t useful, but because they are boring as hell. They are the savings equivalent of paying for insurance. And no one wants to save for insurance.

Because I hate emergency funds (and because I’m in debt), I’ve never kept much cash around.

Why would I? I’m in a two income household, I’m a renter, I have car insurance AND a crazy big warranty, I don’t have pets or kids, and I don’t have any existing medical problems. Well, guess what? We all have our thing that could put us in danger of shelling out four figures or more for an emergency. My thing is my husband’s family living overseas.

In January, my mother-in-law died unexpectedly, causing us to buy overseas plane tickets and take three weeks off of work. The problem was, I had basically nothing savings-wise. Know what that means? The plane tickets and all travel expenses went on a credit card (as did some of our life expenses due to the lack of work). Our expenses were crazy high, because grief just isn’t frugal.

While I don’t regret ANY of the spending (because people, THEN money), it has opened my eyes to the importance of an adequate emergency fund.

You may have just about everything going for you, but emergencies don’t give a shit about your plans.

Prepare yourself now, no matter how unlikely you believe it is for an emergency to occur.

Guess what, guys? Dealing with the loss of a loved one is not the time to worry about money. While you can’t insure yourself against heartache and loss, you can have the money in place so you can grieve without finances weighing down on you.

Lessons learned:

1) When shit hits the fan, you best have an umbrella.

2) Don’t ever let something as trivial as money keep you from your loved ones. EVER. You wouldn’t trade your loved ones for cash, don’t prioritize it over them.

3) While I hate putting money in an emergency fund, I need to do so. Paying debt is more attractive, but what’s the point if I’m going to have to finance emergencies anyways?

We all have that thing that could ruin us financially without an emergency fund. What’s yours? Do you have enough in your emergency fund to accommodate it?