Financial Goals: The Long, Short & Middle Of It

I’ve been inspired by this post to list out our/my financial goals. I like the idea of planning out savings the same way you would plan out paying off debts using the Dave Ramsey snowball method.

Hopefully I will remember to refer to this and update as the years go by.

Short Term Goals (anything that needs attention in the next year):
Name: Maintain Emergency Fund
Life Reason: To give us the freedom to undergo hardship without stress
Terminal Amount: $40K (Source: Savings)
When goal needs to be met: Already met

Name: Car Replacement
Life Reason: We have 2 old cars but one is likely to die soon or cost too much to repair.
Terminal Amount: $25K
When goal needs to be met: September 2016

Once a short term goal is funded, you can immediately spend the funds, or save that money toward mid-term goals

Worthy Midterm Goals (anything that needs attention in between one year from and when we retire):

Name: House Down Payment
Life Reason: I would like to own a house that can be left to kids. However I’m firmly believe that most houses are not investments.
Terminal Amount: $200K
When goal needs to be met: 2017

Name: Life Insurance
Life Reason: We have a special needs child who will need financial help after we’re gone.
Terminal Amount: $100K*
When goal needs to be met: 2037-ish
* Truthfully I don’t know how much we need in this account. Several people have told me that the government programs will suffice, yet these are the same people who tend to favor budget cuts in government programs (which would include any program helping the disabled).

Long Term Goals:
Name: Retire
Life Reason: We want a comfortable retirement with ability to leave enough to our kids.
Terminal Amount: $1.5M indexed to inflation
When goal needs to be met: 2037-ish

While we’re okay in terms of emergency savings and our car goal, it seems highly unlikely that we can meet the 2 biggest goals — house down payment and retirement.  I am assuming that the house value will have to be a part of retirement or inheritance for kids.

 

 

No Wonder I Can’t Afford To Buy A House

I recently came across a 2007 report from the California Budget Project called “Making Ends Meet: How Much Does It Cost To Raise A Family in California?”  We didn’t even have kids in 2007, but I guess I was concerned abou this topic already.

The report is very detailed and informative, breaking down expenses for 1) Single Adults, 2) Single Parent Family, 3) Two Parent Family (One Working), and 4) Two Working Parent Family.

In 2007, the income required to have a modest standard of living for a two-parent family (one working) was $51,035. In 2013, it costs the same family $62,382 to survive in Los Angeles — a $11,347 increase. 

For two working parents, the cost of survival is $83,561.  This seems do-able until you see the cost breakdown.

CA-family-83561-2

For example, housing and utilities is shown as only $1,421.  In reality, rent is a huge burden for most Californian families.

According to the US Census Bureau, in 2012, 48.3 percent of households spent at least 35% of their income on rent.  Nearly 1/3 of households spent at least half of their income on rent.

Our rent is on the high-side — $2,000 for a 3-bedroom house in a modest working-class neighborhood.  This does not include utilities, water or trash services.  We also own two cars, which is more of a need than a want in suburban Los Angeles. We do save on childcare thanks to family help.  No wonder we tend to spend more than we make each month, and cannot save for a down payment!

The problem for my family and many, many others is that salary has not kept up with cost of living. According to the California Budget project (my emphasis in bold):

“The steady economic recovery has failed to generate robust gains in earnings for many of those who are working…Earnings have not kept up with the overall rate of inflation, with low- and mid-wage workers in particular still coping with the substantial erosion of their wages. In 2013, the hourly wage for low-wage workers – those earning at the 20th percentile of the wage distribution – was still 5.4 percent below its 2006 level, after adjusting for inflation…those earning California’s median wage – earned 5.1 percent less in 2013 than similar workers did in 2006, after adjusting for inflation.”

I am not at all surprised by these findings. During the recession, companies froze salaries, laid off scores of employees, and outsource work as much as possible.  The workers left behind had little power to negotiate and were just glad to be employed.  Now that the recession is officially over, employers are not instituting wage increases to “make up” for the last few years even while they’re enjoying greater productivity.

I know the solution, as always, is to jump ship. However, I wonder why companies don’t value and hold on to good, loyal employees?  It will be interesting when my company does its annual review.  I would hope for a bigger raise but chances are, I’ll be lucky to get a small raise that doesn’t even cover increased healthcare costs.

How did you fare in terms of salary over the past few years?

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How To Stay Middle-Class: Government Help?

This is one in a sporadic series of tips/ideas to help you stay middle-class (HTSMC).  Whether you consider yourself on the lower- or higher-end of the spectrum, you can probably find some useful tips to help you stay there and find save more for retirement even as wages stay stagnant.

Work the System*

Most government programs help lower-income households.  However, even if you’re solidly middle-class, there may be times — due to disability, unemployment, under-employment or circumstance — that you may actually qualify for some assistance.   It is important that you keep abreast of new programs and policy changes that can help you and your family.  I’ve had mixed experiences but during tougher times, the government has actually been a lifeline for me.

The first step is to check your state and local government websites.  There are tons of resources out there and it can be confusing.  However, take the time to familiarize you with different aid programs.  In addition to widely-known programs like food stamps and disability benefits, there are other programs that have more wiggle room in terms of qualification requirements.

For example, when my husband and I were first looking to buy a house, we found out about a first-time home buyer program.  Operated by the Southern California Home Financing Authority (SCHFA), this program provides low interest loans and closing cost assistance in Los Angeles and Orange Counties.

Maximum Income Limits – Los Angeles County

Type of
Construction – New and Existing
One or Two
Person Households
Three or More
Person Households
 Up to $99,360  Up to $115,920

As you can see from the above, a family or three or more could make over $100,000 per year and still qualify.  That is not luxury-level living in Los Angeles but the cut-off is more generous than many other government programs.  Another option in California is CalHFA, which requires first-time home buyers to take a home buyer education course.

A quick Google search for “first time home buyer [your city/county]” will pull up results pertinent to your area.

The bottom line is that there are programs out there to help the average middle-class Joe/Jane. You just have to look for these and once you find one that works for you, be persistent and ask a lot of questions. More to come…

* I realize that the term “work the system” has negative connotations. I’m not advocating doing anything dishonest.  However, I believe that you need to be the squeakiest wheel (and very informed) in order to get services.