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7 Financial Goals Every GenXer Should Have

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GenX - or more formally, Generation X - is that group of people who were born between 1965 (the first year after the Baby Boom ended), and approximately 1980.

That means that the leading edge of GenX is turning 50 this year, and most of the rest are somewhere north of 35. GenXers - welcome to middle age!

At this point in life you should establish clear financial goals. And if you have already set them, now might be the prime time to hit the fast-forward button on them.

This is the time in life when people generally make the most financial progress in their lives.

If you don’t have clear financial goals here are seven that you should have.

1. Put Yourself on a Budget

Despite constant advice to adopt some form of formal budget, a lot of people just “wing it”. But as you move into your 30s and 40s, and spending pressures increase, the need for some sort of comprehensive budget to control spending becomes more apparent over time.

For one thing, there are simply more demands on your financial resources than ever before. You probably have a house payment, retirement contributions, various types of insurance payments, one or more car payments, credit card payments, and maybe even student loans.

The you may intend to get greater control of your money, and maybe increase savings and pay down debt, but it’s usually not possible unless you create a very specific budget framework.

A budget is the method that you need to use to monitor and redirect spending so that you will have the cash needed to payoff debt and save more money. It enables you to do all of that by helping you to control your spending. Until you master that side of your finances, it’ll be very difficult to make any kind of progress on a long-term basis.

Fortunately, there are plenty of resources available to help you set up and maintain a budget. Popular software packages, such as Mvelopes, Mint.com, and You Need a Budget (YNAB) are available to help you.

Implementing a budget is somewhat uncomfortable if you’ve never done in the past. But once you get it up and running, and you allow it to help you to make improvements in your finances, everything starts to flow. Then, everything that you always hoped would happen with your finances suddenly starts to become a reality.

Brearin Land, a Financial Planner in Irvine, California, says that:

“Putting a budget together is the first step to setting yourself up for long-term success financially. When your money is managed at random it disappears very quickly. Having a tangible measure of where your money is coming and going at all times allows you to stick to goals, track progress, and continue to raise the bar higher.”

2. Create a Spending and Saving Allocation Split

Once you’ve set up a budget, and you can see where your money’s going – and where it needs to be – you have to set specific savings goals. This is about creating an allocation between spending and saving.

You always know that the majority of your income will have to be spent for basic living expenses, as well as for certain luxuries. But if you hope to save greater amounts of money in the future, you also have to have an allocation dedicated for that purpose.

This is all about setting a savings goal. For example, you can choose a certain percentage of your income that you want to save in various accounts. You can decide you want to save 10%, 15%, 20% or more of your paycheck each month. The percentage is less important than the fact that you commit to whatever number you decide.

The reason you need to do this is that savings don’t accumulate randomly, but systematically. Just as you have to have a budget for spending money, you also need to have a “budget” - or allocation - for savings. That will guarantee that no matter what’s going on with your spending, you will always have X-percent going into savings.

It’s not possible to know precisely how much money you will have in any given savings or investment account years into the future. But you can control the amount of money that you put into these accounts with absolute certainty. And that’s why you need to set a specific savings allocation.

3. Set Up Automatic Deposits into an Emergency Fund

Having an emergency fund is common financial advice. Most financial advisors recommend that you have enough money in your emergency fund to cover your living expenses for between three and six months. That’s solid advice, but the problem is that creating an emergency fund is never a single step goal. As soon as you are hit with an emergency, the account can be emptied.

And there’s always an emergency lurking out there somewhere.

For this reason, filling your emergency fund needs to be an ongoing goal. Because it’s never possible to know when an emergency situation will strike, how frequently they will come about, or how much money they will require, it’s important to fund the account on an ongoing basis.

I just described setting up a savings allocation; part of that allocation needs to go into an emergency fund on a regular basis. You can do this through automatic deposits from your paycheck, in much the same way that you would with a retirement plan. This will ensure that there’s always a flow of fresh cash into your emergency fund.

You don’t have to worry about over-funding your emergency fund either. For example, let’s say that you decide that you want the fund to hold four months worth of living expenses. Anytime your balance goes substantially above that level, you can simply have excess funds transferred into an investment account or a retirement account.

In that way, your emergency fund serves two purposes,

  1. as a true emergency fund, and
  2. as a collection account for future investments.

Either way you win, and either way you’re helping your financial situation to move forward.

4. Set Up a Retirement Account and Fund it With Automatic Deposits

According to the US Department of Labor 30% of employees don’t participate in their employer-sponsored 401(k) plan. If your employer offers one, you should certainly participate.

Even if you don’t have a whole a lot of money to spare, at least try to invest up to the company match. For example, if the employer matches 50% of your contribution up to 6% of your pay, then you should at least contribute enough to get the full match - it‘s virtually free money.

If you don’t have an employer-sponsored plan, you should start an IRA, either traditional or Roth. For 2015, you can contribute up to $5,500 per year ($6,000 if you’re 50 or older).

If you’re self-employed, start your own retirement plan. A good way to do this is with a Solo 401(k) plan. This is similar to an employer sponsored 401(k) plan, but it allows you to save a lot of money in a hurry.

Tony Liddle, CEO & Financial Advisor at Sark Investments says:

“Setting up automatic Retirement Accounts is an easy way to make sure you’re setting yourself up for success saving for your retirement. After you figure out which type of account will work best for you, all you need to do is get it set-up by your financial advisor. It’s really that simple.”

According to the IRS, you can contribute 100% of the first $18,000 ($24,000 if you‘re 50 or older) of your income to the plan for 2016. In addition, you can also contribute up to 25% of your income to the plan, since you are also considered to be the employer in the plan.

What ever route you choose, make sure that you are in some sort of comprehensive retirement plan. Though its always best to start participating in one when you’re in your 20s, now is the next best time if you haven’t started already.

If you have set up a savings allocation, a large percentage of that should be directed into your retirement plan. Choose a percentage of your income, and have it transferred to your retirement account either through payroll savings if you’re an employee, or through automatic bank drafts you’re self-employed.

Any kind of savings plan always works best when you can automate it. Payroll savings and automatic drafts are the way to make that happen. It essentially creates a line item in your budget that’s allocated specifically for retirement savings.

5. Get Off the Debt Treadmill as Soon as Possible

If you haven’t set getting out of debt as a goal, you should. Carrying debt is tough enough when you’re a young adult, but it becomes increasingly difficult as you get older.

Your first order of business should be to stop incurring new debt. That will give you an opportunity to payoff the debt that you already have. You don’t even have to do anything dramatic here. You can simply decide to make changes in how you manage your debt.

Examples include:

  • Driving your car for several years after the loan is paid off
  • Not buying anything - including family vacations - that you can’t afford to pay cash for
  • Not incurring new debt on your home, either through refinancing or home equity lines of credit
  • Setting up savings plans to pay for your children’s college education, so that neither you nor they will need to rely heavily on student loans
  • Setting a plan to pay off your student loans and your credit cards over several years

Many people think that paying off credit card debt is close to impossible. If you simply stop using them, and making your payments regularly, eventually the balances will drop to levels were paying them off completely won’t be so difficult. The important thing is committing to the task, and that requires setting a goal of getting out of debt.

6. Create a Career Plan

It’s been said that most employees know more about their company’s five-year plan than they do about their own five-year plan. In most cases, this is because the employee doesn’t have a five-year plan.

What am I talking about? You should have a career plan that spells out where you expect to be five years from now, though it can be 10, 15 or 20 years from now. It should also spell out the specific steps that you will need to reach your career goals.

This might include developing strategies to acquire additional training or qualifications, to take on new responsibilities at work, to make certain career moves, or even to create your own business. Just as is the case with saving and investing money, you should have a specific plan that will help you to go from where you are to where you want to be.

Financial obligations only seem to get bigger as you get older. You’ll need a bigger income in order to cover these obligations, and fund the goals that you are setting for yourself. You’ll need a plan to do that, that’s why you need to create a career plan.

7. Establish a Reward System For When You Achieve Goals

If your basic response to achieving a goal is to simply set another goal, there’s a serious risk that you’ll burn out. No matter how noble your long-term goals are, there has to be some sort of reward when a shorter-term goal is achieved.

That reward represents an affirmation that you’re heading in the right direction, and doing what you need to do. You can even attach specific rewards to certain goals, to help motivate you, your spouse, and your children to achieve those goals.

For example, if you reach the goal of saving six months of living expenses in your emergency fund, you may want to reward yourself with some sort of major purchase (as long as it doesn’t empty your emergency fund!).

If you succeed in paying off your credit card debt, you may want to take the family on a dream vacation. Very often, once you get out of debt, dream vacations become more doable, because you’re living on a cash basis.

Having goals and accomplishing them, should be all about making your life better. It’s perfectly okay to enjoy some of that benefit now, rather than waiting for someday in the distant future.

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