CHAPTER 5 PLANNING TO MEET YOUR LIFE's GOALS An increasing number of people feel the need to give greater attention to meeting long-term goals. Many previously carefree baby boomers are now in middle age, face increased responsibilities and are planning for the future or wish to establish more ambitious goals. Are you comfortable with the state of readiness of your plans and preparations for meeting long-term goals in areas including: emergency fund, insurance against personal and property perils, college education fund, career, housing and retirement? Unless you are planning to enter a monastery, sound financial planning is usually a major prerequisite to meet long-term goals. The establishment of comprehensive, long-term goals with specific time tables and measurable interim checkpoints may seem difficult. But, EZ-$-PLAN can help you with this process. Economists are well aware that society's wants and needs greatly exceed it's ability to satisfy them. Unfortunately, economic resources used to produce desirable goods and services are limited in supply. At a personal level, resources are also limited. EZ-$-PLAN helps you to arrange your affairs and resources to improve your ability to meet your most important personal objectives. How should you balance your desires to enjoy the current pleasures of life with the need to save for long-term goals? The balancing act involves: (1) hard work to provide current income, (2) expenditures to support yourself, your family and other needs and (3) sacrifice, i.e., delay current expenditures in order to save sufficient funds to meet future needs. EZ-$-PLAN provides you with a convenient structure for listing, quantifying, reviewing, balancing, establishing priorities and updating your goals. Use your resources wisely via use of the following templates: * GOALS (part 1) helps you brainstorm by yourself or with the family to establish your goals given unlimited time and money. GOALS (part 2) helps you prepare a comprehensive list of realistic goals given limited personal resources. A checklist of common personal goals helps you see if you have overlooked any important objectives. Establish priorities and quantify your goals in terms of their importance and in terms of the time and cost to achieve them. * TODO helps you to prepare, establish priorities and update a list of near-term tasks to: (1) help make your daily life more productive and (2) help you take specific actions towards meeting your long-term goals. 27 Chapter Five * SELECT helps you choose between several alternatives in such a way as to maximize your benefit. GOALS UNLIMITED! Gather the family around for an enjoyable exercise. First, load the EZ-$-PLAN template file GOALS as follows: (1) Boot-up your PC. (2) Change directory: Enter C:CD\ASEASY Ret. (3) Load AS-EASY-AS: Enter ASEASY/P/CTR Ret. (4) Load GOALS file: Enter /FR Ret. Move the cursor to the GOALS location and Ret. (5) Move the cursor to the desired location in GOALS and enter data. (6) When you wish to save your work, enter: /FS Ret. Save the file under a filename such as GOALS1 so that the new file will not overwrite the original GOALS file. Imagine that you have a large amount of time and money. Suppose you just won the lottery! You no longer have to work. What would you do with the funds? What goods or services would you buy? What donations and investments would you make? What would you like to do with your time? Would you travel to a tropical climate or visit friends? Would you enjoy various sports, leisure, intellectual and cultural activities? Start your own business, keep working or just relax? Take turns announcing and recording your choices. Keep going until you run out of ideas. Do not criticize the suggestions of others. Foster a free exchange of ideas. Table 5.1 shows a sample result. This exercise is fun, interesting and useful. It may put you closer in touch with your and your family's desires. Some goals may not even involve costs! Table 5.1. Goals (GOALS) A B C D E 3 Name: Bill and Hope Planner 4 Date: 6/26/88 5 ----------------------------------------------------------------- 6 Goals Unlimited (Part 1) 7 ----------------------------------------------------------------- 8 Take time off to relax 9 Custom home 10 Luxury car 11 Travel 12 Support worthy causes 13 Go to health resort 14 Powerful computer/communications/software system 15 Hire investment counselor 16 Finish reading Personal Financial Planning Made Easy 17 ----------------------------------------------------------------- 28 Chapter Five (Table 5.1. continued) 18 Realistic Goals (Part 2) PRIORITY NEED EXISTING DATE 19 ----------------------------------------------------------------- 20 Emergency cash reserve 1 10,000 6,000 12/88 21 Life insurance - Bill beneficiary 1 200,000 180,000 9/88 22 Life insurance - Hope beneficiary 1 300,000 270,000 9/88 23 Disab. insurance, Bill, per month 1 2,000 1,200 9/88 24 Disab. insurance, Hope, per month 1 2,000 1,200 9/88 25 Children's education 1 26 Mary 1 165,000 30,000 9/88 27 Mary, per month 1 293 293 9/88 28 Jenny 1 188,000 30,000 9/88 29 Jenny, per month 1 224 224 9/88 30 Retirement in 20 years 1 ? ? 9/88 31 Retirement savings per month 1 ? 500 9/88 32 Start profitable business 1 4,000 2,000 9/88 33 Get more exercise 1 0 34 Improve diet 1 0 35 Spend more time with kids 1 0 36 ----------------------------------------------------------------- 37 Downpayment on new home 2 13,000 6,000 9/90 38 Buy newer car 2 6,000 0 9/91 39 Florida vacation 2 2,000 1,000 12/88 40 Buy investment property 2 20,000 5,000 9/90 41 Complete EZ-$-PLAN worksheets 2 0 42 ----------------------------------------------------------------- 43 Buy entertainment system 3 1,500 0 12/89 44 Caribbean junket 3 2,500 0 12/91 REALISTIC GOALS Now back to reality! Assume that you have a job or business, and that your time and money are limited. What are your realistic objectives? Highest priorities are often given to goals such as: * Provide for self and family (e.g., food, clothing and shelter). * Accumulate assets for emergency fund, increase financial security and prepare for major expenses such as purchase of automobile or vacation costs. Invest your savings to yield the best, after tax, return at a tolerable level of risk. * Apply your talents productively with best return on investment of time and energy. For some, interesting, enjoyable or important work, as well as good financial return on time invested, is most desirable. * Educate your children. * Protect against perils such as: untimely death, health care costs, disability, liability, loss of job or property. * Contribute time and money to charities, organizations and causes. * Spend time participating in enjoyable activities such as travelling, studying, reading, exploring, visiting friends. 29 Chapter Five * Obtain goods and services to enhance enjoyment of life. * Arrange for the eventual transfer of your estate according to your wishes. Which results of your unlimited time and money goals brainstorming session are considered important, reasonable and affordable? Review all the above goals. Which goals receive the most support? Which goals are the most desirable and achievable? Next, we suggest that you rank your goals in categories of priority: 1. for the most important, 2. for lesser importance items and 3. for the least necessary or lowest priority.Perhaps you'd also like to assign priority for goals within groups. Table 5.1 (part 2) shows a sample list of realistic goals prepared by Bill and Hope Planner. They have assigned a priority to their goals with the most important items first, lesser items second and luxury items third. Next they estimated the cost to achieve the goal and entered the existing funds set aside towards paying for the goal. Finally, they estimated the date by which they believe that it is realistic to achieve the goal. Bill Planner participates in his company's pension and income savings plans, but is not sure if these monthly savings are sufficient. He plans to use EZ-$-PLAN files from the retirement chapter to help him quantify his retirement goals. To prepare your own list of realistic goals, follow the steps given above to load the EZ-$-PLAN file GOALS and move the cursor down to part 2. Preparing this list of realistic goals is a great way for the family to brainstorm together to think of and assign priority to your goals. Some goals may be obvious, some may be more vague, distant and challenging possibilities. Some of the most enjoyable goals may cost very little, such as taking time for special family activities, travel to local places or to do things to improve diet and health! Other goals, such as saving for retirement, may be less fun but are still important. To help you see where you stand financially in moving towards your goals, consult your balance sheet (EZ-$-PLAN file NETWRTH discussed in chapter 4). Some balance sheet assets relate to your long-term goals such as housing, college education and retirement. Refer to the chapters on real estate, college education and retirement and use the EZ-$-PLAN files in the financial calculator chapter to help you quantify the monthly savings required to meet these long-term goals. Next use the file INCEXP to see what amounts you can set aside from current income towards your several goals. PLANNING NEAR-TERM TASKS Once you have selected your most important goals, what next? Use EZ-$-PLAN's file TODO to help you focus on the specific steps or tasks necessary to reach these goals. With TODO you can list, organize and assign priority to tasks competing for your time, and choose to do those that maximize your productivity. 30 Chapter Five You may benefit from several TODO files. For example, some people use individual TODO files for work, part-time business, family and personal activities. Table 5.2 shows Bill and Hope Planner's family TODO file. Priorities are listed in column A and near-term action items in column B. Table 5.2. Bill and Hope Planner's Family To Do List 2 (TODO) 3 Last Update: Oct. 7, 1987 4 A B 5 Priority Near-term Action Items 6 ------------------------------------------------- 7 1 Pick up toaster oven 8 1 Pick up chairs 9 1 Return book to Swarna 10 1 Kids practice violin 11 3 Color picture 12 3 Hem pants 13 2 Send note to Ginny 14 3 Upholster chair 15 3 Clean blue room closet 16 1 Pay bills 17 2 Go to Ikea and Bloomingdales for cot, etc. 18 2 Check out answering phones at ATT store 19 2 Order silverware from Happy Viking 20 1 Exercise, ride bicycle 21 2 Order software for Jenny 22 1 Order 2 jackets from Sears 23 2 Federal taxes 24 2 Part time business To access the TODO file, simply follow the steps listed above for the file GOALS, but instead use the file name TODO. To delete a completed task, move the cursor to the line to be deleted and use the following command: * Enter /WD (return) to delete row or column. * Select ROW from menu, enter Ret. to execute. Examples of ways TODO can help you include the following. If a task that you should do in the future (but not immediately) flashes across your mind, jot it down or you may forget it. Later when you can add additional activities to TODO, organize and assign a priority for all the tasks and activities that you have made note of. For family items, you may want to discuss and agree on priorities with your spouse. For those that have weekends off from work, an update of TODO on Friday night may productively plan Saturday and Sunday affairs and not waste half of Saturday morning debating what to do. 31 Chapter Five SELECTING THE RIGHT ALTERNATIVE Have you ever had difficulty selecting between two or more alternatives? Perhaps there were numerous advantages or disadvantages to each choice and some considerations were somewhat qualitative? For example, suppose that Bill and Hope plan to buy another house and are trying to decide between a new house and an older house. Table 5.3 shows an example of the use of the EZ-$-PLAN file SELECT used by Bill and Hope to compare advantages of the two different house choices. The contents of cell B7, W, stands for an assigned weight. The weight is a number from 1-10 that measures the importance given to the item (higher importance gets a higher number). The contents of cells C7 and D7, C and D, stand for alternative choices described in cells A4 and A5, i.e., houses on Technology Drive and Rose court respectively. The numbers in columns C and D denote the value given to the associated item. For example, in line 10 (neighborhood), which Bill and Hope rank 9 in importance, they give scores of 5 and 9 respectively to the Technology Drive and Rose Court neighborhoods. Rose court gets much higher marks in terms of quality of neighborhood. Total values for the alternative houses are calculated by SELECT as the sum of products of individual weights and values given to each line item. The Rose Court property outscored the Technology Drive property by 458 to 355 (see cells C18 and D18). Table 5.3. Choice of a House (SELECT) A B C D E F 3 Date: July 3, 1988 4 C = 45 Technology Drive 5 D = 24 Rose Court 6 ----------------------------------------------------------------- 7 Item W C D Comments on C Comments on D 8 ----------------------------------------------------------------- 9 Price 8 8 7 145,000 175,000 10 Neighborhood 9 5 9 Older New development 11 Appreciation potent. 7 5 8 Older house New house 12 Safety for kids 9 5 8 OK Good, cul-de-sac 13 Convenience to shops 5 8 5 2 mi. to WAWA 14 Friends for kids 8 5 8 OK Good, many kids 15 Lot 6 5 8 Poor priv., .2ac Good priv., .5ac 16 Quality of schools 7 8 8 17 18 Total Value 355 458