January 6, 2014

Budgeting & Saving for a Dream (Part 2): Goals

Well the holiday season is officially over, we are back to work, and beginning to chip away at our goals for 2014. One of our biggest goals for this year (and for the next few years) is to continue saving money for our homestead dream. I am also sure that many other people have also made many financially related goals or resolutions for this new year, and I know that for many people saving, budgeting, and dealing with finances can seem overwhelming or difficult. So in the next few weeks I will be posting a series talking about the things we do to achieve our financial goals in hopes that we can inspire a few people to start achieving their financial goals! (Be sure to check out part 1 of the series here).


Start with a dream

So where do you start? With dreams. These dreams will be different for everyone, but without them it is difficult to find the motivation to start and the perseverance to keep going. So really take some time to think about what you really want, whether that might be to buy a house (or homestead), to become debt free, or to retire early. Think about why you want it (or is it just something that you "should" do... If it is something that you "should" do maybe try to find a way to reframe it so that it becomes something you want to do). Write down your dreams and tell friends and family about your dream so that it becomes less of a fantasy and something that you are planning to do!

 

Break it into small, manageable goals

Once you have found your motivation, you need to start thinking about how to make your dream a reality. Especially with big dreams, it can seem overwhelming at first, so I suggest that you break down your dreams into smaller, more manageable steps. If you need to save a lot of money or to pay off a large amount of debt, I would suggest that you first break it into smaller goals.

For example, you could use the snowball debt reduction method championed by Dave Ramsey (and others) to make your debt seem more manageable. (With the snowball debt reduction method you allocate extra cash towards paying off your smallest debt. Once paid off, you take allocate the money that you are no longer paying on your previous debt to a slightly larger debt and so forth).

Or if you are saving up for a large purchase or goal, you could break it down into smaller "funds"  (such as a land fund, an infrastructure fund, and a house fund in our case). You may even want to open up separate savings accounts for each fund (easy to do on many online high-yield savings accounts). Then as you focus on one fund at a time, you can see that you are making progress towards each of the smaller goals as you see the balance of your account approaching each mini-goal.

Once you have broken down your goals, you want to start creating small actions steps to take towards achieving your goal. These steps might include:
  • Open a savings account (or accounts) at a high-yield online savings account dedicated to your goal. (Note: Once you have this account set-up be sure to tell yourself that this money is off limits for anything other than your goal... Just one good reason to have a dedicated emergency fund so that you are less likely to find yourself in a situation where you will need to dip into it.)
  • Set-up a budget and determine how much money you can realistically afford to save each month. (Next week I will talk about how I set-up our budget and savings plan).
  • Set-up an automatic savings plan so that you automatically deduct a given amount from your checking account each month. This will help you to save more consistently rather than relying on your will power (and memory) to make a deposit into a savings account each month.
With each of these tips, please remember to be realistic and patient with yourself. You are more likely to succeed if you start off slowly and build from there than if you start off too big and then give up because it becomes to difficult.

How we are doing it:

We too faced the overwhelming reality of how much money we needed to save to buy a homestead. Rather than focusing on how much money we have to save we broke our dream into smaller less intimidating goals.
Step 1: Laying the groundwork for financial security
First I should mention that Nathan and I were very lucky to be in a good position before we started to save in earnest. Without our wonderfully generous parents that were willing and able to give us a good foundation to start out with, this journey would be much more difficult. They payed for most of our college education, leaving us with just over $10,000 in students loans and the ability to get good-paying jobs. Our cars also came from our parents when we were in college, and they have also helped in numerous other little ways (like sharing family cell-phone plans).

I am very grateful, not only for everything they have done for us, but also especially for everything my parents taught me about being financially responsible. Early on, I knew never to let myself fall into credit-card debt and they made sure that both my sister and I had savings and retirement accounts shortly after we started working at the age of 14. It has allowed me to start in a better place than many other people my age.

  1. Our first step was to make sure that we paid off all of our debt. We worked hard to pay off our student loans within 18 months of graduating… and we have made sure to stay debt free ever since! (In hindsight, it may have been wiser to start with an emergency fund and then to focus on paying off our student loans... but we were lucky and didn't run into any emergencies during this time.)
  2. Our next step was to start an emergency fund to cover up to 6 months of living expenses. We just completed this step in August!
  3. Even though in some ways the homestead itself will be one way that we invest in our retirement, we still contribute 16% of our take-home pay to our IRA and 401K retirement accounts each year, as security for the future. We have family members that we have seen struggle to keep their farms as they grow older, and we want the peace of mind knowing that we will have a large emergency fund if we are ever unable to continue to work on the homestead like we did when we were younger.
Step 2: Saving for the homestead
We guesstimate that we will need to save a minimum of $125,000 before we move to our homestead. However, if we just put in a little money each month towards this huge goal it would feel like we were never making any progress, so we have broken this down into smaller steps.

  1. Save at least $45,000 to buy land. One of the reasons we decided that we won't be able to homestead in Oregon, was because it would be nearly impossible to find usable land at a price we could afford. In the locations that we are looking (read part 1, 2, 3, & 4 in our search for place to call home) it should be possible to find at least 5 acres for this price based on what we have seen available.

    And if we are successful in convincing our parents that they want to be our neighbors, we may be able to buy more land since the price per acre decreases as you buy larger pieces of land. For example we might only be able to afford about 5 acres for $45,000 but if each family pitches in $45,000 for the land, for $135,000 you can easily find 20+ acre parcels which could then be subdivided into 3 parcels (something fairly easy to do between family members in many places that we are looking).

    Goal: save at least $2,000 per month to this account.
    Projected finish date: Summer 2015
     
  2. Save $65,000 for housing & infrastructure costs. We hope to build our own small home. Actually, based on a suggestion from the book Mortgage Free!: Innovative Strategies for Debt-Free Home Ownership, we plan to eventually build 2 houses. First a small one that we hope to finish before we move to the homestead. This will be the "practice house" where will make all of our mistakes while we learn how to build a house. Then after we have moved to the homestead we will build a slightly bigger permanent house on a pay-as-we-go basis. After we move into the 2nd home, we might rent out the first house as a vacation cottage (one possible source of income after we move to the homestead).

    Nathan will soon begin to use the remainder of his education award from his AmeriCorps service to begin taking classes that will help us build our own house (think plumbing and electrical classes). I also want to start volunteering for Habitat for Humanities Women Build project to get a bit more hands-on experience as well. I am also interested in alternative building methods (such as straw-bale or cordwood) so I would like to establish a fund for building workshops at some point.      Nathan will soon begin to use the remainder of his education award from his AmeriCorps service to begin taking classes that will help us build our own house (think plumbing and electrical classes). I also want to start volunteering for Habitat for Humanities Women Build project to get a bit more hands-on experience as well. I am also interested in alternative building methods (such as straw-bale or cordwood) so I would like to establish a fund for building workshops at some point.                                             
    Goal: currently only $50 per month… will bump up to at least $2,000 after land is bought.
    Projected finish date: Fall 2017
  3.  Save $15,000 cushion money for our first year on the homestead. We won't have too many income streams set-up our first year on the homestead and there are certainly going to be living expenses and start-up costs in that first year! It will be nice to have a little cushion to work with so that we don't have to dip into that emergency fund.

    Goal: currently $0 per month…will bump up after all other goals are accomplished.
    Projected finish date: Summer 2018

We are happy with our progress so far. Be sure to keep an eye on our progress in our "Follow the Dream" tab as we update how the saving is going!


How do we save so much money?

If you have been keeping track you may have noticed that between our retirement and savings accounts we are saving quite a bit of money each month. On average we are putting away $2,450 each month. Our take home pay is just over $4,000 each month. That means that we are saving over 60% of our income each month. How do we do it?
  1. Starting slowly... we didn't always save so much. We built up to it.
  2. Careful budgeting
  3. A little sacrifice (but not too much…)
  4. And some luck & creativity
Next week I will talk about the second reality we face: how we manage to save so much by carefully budgeting and spending the remaining 40% of our income.

(This post was also shared on Tuesday Greens, Tuesdays with a Twist, Maple Hill Hop, Homestead Barn Hop, Backyard Farming Connection, Down Home Blog Hop, Home Acre Hop, Simple Lives Thursday, From the Farm Hop, The 104 Homestead Hop, Simple Saturdays, Strut Your Stuff Saturday, Simply Natural Saturdays and Natural Living Mondays)

6 comments:

  1. This looks like a great plan. I really like the graph you've made to see your progress. Best wishes!

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  2. Sounds like you're focused and have a GREAT plan! WOW!

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  3. Sounds like you guys are on the right track. We are big fans of Dave Ramsey methodology for finance and budgeting. It has helped us tremendously. Thanks for sharing with us at The HomeAcre Hop!

    Please join us again Thursday at:
    http://summersacres.blogspot.com/

    ~Ann

    ReplyDelete
  4. Thanks An! I am heading back over shortly to put up this week's posts. Thanks for hosting.

    ReplyDelete

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