967. Laura answers a listener's question about how to feel more certain about setting goals and a budget when your income rises.
967. Laura answers a listener's question about how to feel more certain about setting goals and a budget when your income rises.
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Welcome back to Finance Friday, another special edition of Money Girl, where I answer your burning money questions! Today's topic comes from Dan, who says:
“I’m a 35-year-old man who owns a home and is happily partnered with no kids yet. I have a potentially strange question because I’m in the fortunate position of being quite financially secure.
I’ve worked very hard after growing up in a financially unstable household. I paid off nearly $80,000 in college debt by the age of 26; rose quickly in my nonprofit career to an annual salary of about $200,000; and then about a year ago, I left that track to launch a consulting business.
This year, my business revenue before taxes will exceed $500,000, quite miraculously! I have some subcontractors, but my business expenses are relatively low.
I have about $300,000 left on a mortgage at a 2.9% interest rate and about $20,000 on a car loan with 0% interest. And I’ve saved about $400,000 for retirement–so, I’m in the most secure position I could have imagined.
I’m pretty careful with my spending and am trying not to ‘inflate my lifestyle,’ but I'm struggling to determine what my goals should be. When I was making less money, it seemed easier to set goals and budgets. But now, I don’t really know where to begin.
I have a great financial advisor, but I still feel a little lost about whether to expand the business, invest more in philanthropic causes, or save more for emergencies for myself, my family, and friends. How does someone who’s financially successful set goals and a budget?”
I love your excellent question, and want to congratulate you on your financial success, Dan! Your hard work and courage to launch a new venture have clearly paid off. Yes, you’re in a terrific position that many people dream of.
However, you’ve acknowledged that being financially secure can come with its own set of challenges, which isn’t strange at all! This post will explore tips for creating new or better financial goals as you achieve greater success. Even if you’re not feeling successful right now, these tips can help improve your money mindset.
Welcome back to episode 967 of Money Girl–I appreciate you downloading the show! I'm Laura Adams, an award-winning author, on-camera spokesperson, female money speaker, and founder of The Money Stack, a Substack newsletter.
You can learn more, ask any money question, and sign up for the Money Stack at LauraDAdams.com. You can get the newsletter for free or become a paid member with access to my live educational and Q&A events. Additionally, you can ask a money question by leaving a voicemail at 302-364-0308.
5 tips for setting goals when you’re financially secure
When you don’t have much financial security, due to having a low income, high expenses, or a lot of debt, your financial goals are crystal clear. You’re constantly on the defensive with your money, perhaps trying to earn more, cut costs, and eliminate debt so that you can save and invest more.
But once you achieve essential financial goals and have more security, your mindset should shift, regardless of your age. You could be in your thirties, like Dan, or a retiree in your sixties or seventies, who has enough to feel comfortable. That change means you no longer need to worry about protecting yourself, but have the luxury of focusing on what you genuinely want to create in your life and the world around you.
It can be challenging to shift from budgeting out of necessity to planning for impact or fulfillment. Here are five tips for setting goals when you’re financially secure.
READ ALSO: What is the best debt payoff method?
1. Create a values-based spending plan.
I prefer the term spending plan over budget because budgets seem restrictive. A spending plan gives you the power to decide what you can and want to spend money on.
Since Dan’s new high income gives him lots of flexibility, I understand feeling unsure about how to prioritize it. However, your spending plan should always reflect your personal values, regardless of whether you have a little or a lot of money.
It sounds like Dan has already been thinking about big questions, like:
I recommend that Dan spend more time contemplating the answers to these questions. He may also want to discuss them with his partner and come up with some top-level categories, like investing for retirement, starting a family, or giving more. These wishes and values should lay the foundation for your spending plan.
2. Decide on “buckets” to fund.
Once you identify the primary categories or buckets you want to fund, you can create specific goals. For example, here are some potential financial buckets:
You can include family and friends in this bucket, which might look like a separate savings account for helping loved ones. You could allocate a percentage of your income or set a dollar amount that you’d be willing to give away or loan to family or friends.
However, after working hard, it’s essential to set aside money for things that bring you joy. Whether it’s a long annual vacation, multiple shorter getaway trips, hobbies, or hiring help to avoid burnout, put it in your spending plan.
The types and number of spending buckets you create are entirely up to you.
RELATED: Am I saving enough for retirement?
3. Automate your spending buckets.
After identifying the key categories or buckets to fund, it’s time to implement your plan by automating it. For instance, you can set up recurring weekly or monthly transfers from your personal checking account to your retirement account and other savings accounts based on a flat dollar amount or percentage of income.
You can set up a recurring transfer from a business checking account to a business savings account to allocate funds for business growth. Many business checking accounts allow you to create sub-accounts for any purpose, such as taxes or growth initiatives.
Automating your values-based financial goals ensures that funds regularly move to the right accounts, eliminating the need for manual decisions or transfers. Automation increases the likelihood that you’ll reach your goals. Of course, if your goals change, you can always alter or stop automated transfers.
4. Adjust your spending buckets.
Consider creating a spending plan that you reevaluate annually. See if you met your stated goals or changed your mind midway through. There’s nothing wrong with adjusting your targets or adding or deleting a category.
For instance, if Dan decides to start a family, he may want a larger home or to invest in a 529 college savings fund. You can always start with relatively small or conservative goals and increase them annually as your income allows.
5. Leverage a financial advisor.
Dan mentioned having a great financial advisor, but still feeling lost. Instead of relying on an advisor to create specific goals, it’s time to empower them based on your values-based plan and ask for guidance.
In other words, once you have a spending plan, you can and should shift the conversation. Instead of asking, “What should I do?” you can say, “What are the most tax-efficient ways to fund my five financial buckets?”
I mentioned using a Donor-Advised Fund. Dan could ask his financial advisor to explain the pros and cons of using a DAF to fund any intended philanthropy. Dan could also ask his advisor to discuss the best way to reinvest a certain amount back into his business, if that’s a current priority.
In addition, it’s critical to have the right insurance to protect your personal and business finances. You can say, “Where am I financially vulnerable to potential risks and loss?” If your financial advisor doesn’t sell insurance, they may have a good referral, or you could ask an existing insurance agent.
Consider yourself the CEO of your financial life and your advisor as your CFO. They can help you implement your vision using the right financial accounts, insurance, and tax strategy.
To sum up, as you transition from financial survival to success, you should become more thoughtful and intentional about creating a fulfilling life. No one can create financial goals for you because your dreams and situation are unique.
LISTEN ALSO: How can I find the right financial advisor?
Dan, thanks again for your terrific question. Since you sent it to me, I know you’re already making progress in identifying the right goals for you, your family, and your business.
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That's all for now. I'll talk to you soon. Until then, here's to living a richer life!
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