Wednesday, December 21, 2005

2006 Goals

It's almost the end of the year and time to look forward to 2006. I've started to set various types of goals: financial, personal, and educational. For this post I'm going to concentrate on some of my financial goals, and I'll get to the rest in future posts.

My base assumption is that I'm going to hit my 2005 year-end goal of $32,000
I'm almost there and I think it's within reach. It's always nice to hit a goal and this was my hardest one to date.
My next assumption that I made is that I'm going to save 40% of my monthly income. This seems like a high rate, but I have a modest amount of expenses and I'll have enough money left for other things (going out, buying things, etc.) So I'll start with the 40% target and see how it goes from there. Using this target results in saving about $1,140/month, which breaks down to $285/week.

Next, I want to increase my net worth by 10%. This growth rate is for my entire net worth, so cash is included and not just stocks. I think this is a decent growth rate, but if anyone has a better idea I'm open to suggestions. A 10% growth rate translates into roughly 0.83%/month.
There's a reason I'm breaking things done into monthly figures.

These are the inputs I put into my calculator: n = 12 (months); i = .83 (growth rate/month); PV = 32,000 (my starting point); PMT = 1140 (savings per month) and I solve for FV (future value, the end amount).
I come up with an end amount of $49,658
We all like round numbers, so my 2006 goal is $50,000

It seems like a long way off, but the important part is to take it step by step. If I can hit my goals one month at a time, I'll be sure to hit my year end goal.

If for some reason things change (if I get a raise, or another source of income), I'll change the goal. The point of setting up the year end goal is to set up a figure that is slightly out of reach. There's no sense setting a goal of $40,000 when I'll hit that with no problem. Likewise there's no sense in setting a goal of $1 million because the chances of that are small.
As of right now, $50,000 seems a little out of reach- which is why that's my goal.

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