Five Financial Goals Everyone Should Have

It doesn’t matter if you are 16 or 60, when it comes to setting financial goals, it is imperative that you position yourself to take advantage of every opportunity. That means funding every tax favored account you can to the maximum amount allowed by law. What might surprise you is that the average income earner can do this with the correct strategy. Most people lack the ability to lay out a successful strategy when it comes to building wealth, so I have made it easy for you. If you follow the strategies outlined in my book, Simple Wealth Building Strategies, you WILL be able to achieve the following five financial goals.

The first financial goal everyone should have is to fully fund his or her employer sponsored 401k account to the maximum allowed by law. For a two income family, that simply means you will have two solid retirement plans. Current limits are $18K contribution limit and $6K catch-up contribution for those over age 50. If you are over age 50, then you need to take advantage of the catch-up contribution. For most incomes, achieving this goal will require thirty percent or more of your income. The table below shows two incomes and the required contribution amounts to successfully save the 401k limit amounts without and with catch up contributions.

The way to position yourself to accomplish this goal every year is to stay out of debt. But staying out of debt is not enough. You must also pay off your mortgage as fast as possible, otherwise you will not have the flexibility in your income to set aside thirty percent or more. When you are debt free and you do not have a mortgage, your entire financial world changes. I don’t want you to think that having this goal is only for rich people. I was talking to someone the other day who has been working since he was 16 years old and this year is the first year he will be able to max out his 401k. It has taken him just over 36 years to reach that point, but he is finally there. Think about how significant his achievement is. When he began working, 401k’s didn’t even exist, so he has only been working on this goal since the mid-1980s. If you want to read an interesting history on the advent of the 401k, click here.

The second financial goal everyone should have is much like the first. Set a goal to fully fund your individual Roth IRA accounts. I say accounts for those who are married. Even if you are a single income family such as mine, you must make it a priority to first fund the non-working spouses Roth IRA and then your own. Current limits are $5.5K per individual and $1K catch-up contributions for those over age 50. Once again, if you are over age 50, then you need to take advantage of the catch-up contribution. I recommend that the working spouse in a single income family funds the non-working spouse’s Roth IRA first because the working spouse will likely have access to an employer sponsored 401k plan that will be fully funded. The priority is first the 401k, then the non-working spouse’s Roth IRA and then the working spouse’s Roth IRA. If both people are working, then this goal is a lot easier, but even for the single or the single income family, there is a way to build a strategy to do this without impacting the family budget.

In today’s world of high health care costs and the disaster known as the “unaffordable care act,” families today need every advantage they can get. Even individuals need to take advantage of the Health Savings Account or HSA, as they are commonly called. Therefore, the third financial goal everyone should have is to fully fund the family’s HSA.  Current limits are $6.75K per family and $1K catch-up contributions for those over age 55. If you are over age 55, then you need to take advantage of the catch-up contribution. Don’t ever leave money on the table when you are in full blown wealth building mode. Some of you might be asking “How is a family supposed to afford all of this savings and investments on an average salary?” You have to develop the mentality that believes “Where salary leaves off, strategy takes over.” The following table shows that, with a little nest egg, one can use the growth of such to create an ulterior income that becomes the pump-primer for the well of wealth.

The more you can increase the brokerage account’s value, the lower the dividend yield you need to accomplish your goal. It is conceivable that you can get to the point where your money is making more for you than you make for yourself, but I’ll leave that for another discussion. This goal is a powerful one, but when you coupe it with the fourth goal, you have a wealth building engine that will blow you away.

The fourth financial goal everyone should have is to contribute the same percentage of his or her income towards the brokerage account that he or she needs to generate in returns to fund his or her Roth IRA’s and HSA. In the first example, the income earner must generate an 8.88 percent return to fully fund the Roth IRA’s and the HSA. Now imagine if the income earner could put an additional 8.88 percent of his or her income into the brokerage account. Funding the accounts mentioned would be a lot easier. The key is to use a portion of your current income as the inorganic seed in concert with your brokerage account to fully fund your Roth IRA’s and HSA. It is not uncommon to find someone who uses this strategy contributing 30 percent of his income to his 401k and 11 percent of his income to his brokerage account. Maxing out your 401k and seeding your brokerage with inorganic growth can go a long way to achieving these five financial goals.

The fifth financial goal everyone should have is to increase cash reserves. These cash reserves are not held in a traditional savings account. This is money you hold in actual cash. The best way to increase this cash reserve is to identify Passive Revenue Streams (PRS). Passive Revenue Streams are sources of income that are non-traditional and income that is generated without requiring a considerable amount of time or energy. The one rule about passive income that you absolutely must obey is this. Passive Revenue should never cost you financially. It is passive, meaning that it should not require a lot of time and energy and it is revenue, meaning that it is an asset, not a liability. 

Passive revenue increases your wealth, it does not deplete it. You must be creative with this goal.

Turn a hobby into a passive revenue stream. I like to write, so I write books and self-publish. Since the publishing is on demand, I only pay a small amount of the royalties towards the costs of publishing, but nothing out of pocket to make my books available. Once I have written the book and self-published it, there is no more effort required. Book royalties are truly a passive revenue stream. The key to this goal is to take the passive revenue and set it aside in cash. This provides you with a quick source of funds when you need a small amount of money and cannot get to the bank. Keep the amount of cash you keep on hand reasonable. You don’t want to have tens of thousands of dollars on hand unless you are expecting a major emergency. 

I titled this message “Five Financial Goals Everyone Should Have” because I believe that everyone can have these goals. It is just a matter of will. You should have them, you can have them, but the questions is, do you WANT to have them? I can tell you that when you do have them and you are succeeding at achieving them, you will experience life from a different perspective. While others are panicking about their future, you will be in a totally different place. A calm place. A place that feels peaceful rather than stressful.

As a financial stability life coach, I help others develop strategies that build wealth. Everyone’s situation is different. Therefore, I do not believe in a cookie-cutter approach to helping others build wealth. You have to incorporate a fair amount of longitude and latitude in every strategy. Having margin allows you to capitalize on opportunity that appears when you have a greater amount of stability. If you are interested in what a financial stability life coach can do for you, click here.