By Jeremy Woods

During the last few articles we have learned ways to monitor and control our expenditures. Now that you have a working knowledge of your current finances its time to make the decisions that will impact your future finances.

I am sure that almost all of us want to buy or build a house and that most of us have a time frame in mind for when we would like this to happen. This is a major financial goal and I know planning for such an event seems overwhelming, but waiting until it is too late without the proper planning will be much more difficult to carry out.

First, establish a reasonable timetable taking into account both your current income and expenses as well as projecting your future income and expenses. Use this information to determine when it would feasible for you to afford a mortgage payment while still allowing ample time to save money for the downpayment. Also take into account your projected age of retirement as it is very unwise to enter retirement while still carrying a mortgage on your primary residence.

For instance if John is 25 years old and plans to retire at age 60 then he’ll probably want to purchase a house by age 30 (assuming a 30 year mortgage) so that he will have the house paid for while he is still working. Since I am sure John is an efficient consumer he’ll want to save a 10 % down payment in the next 5 years. How big a house does he need? What is the average market value for a house that size? If the answers to those questions indicate that John will buy a $200,000 house then he’ll want to save $20,000 in the next 5 years. Assuming John invests his savings conservatively in cash accounts such as CD’s, high yield savings, and money market accounts and gets an average rate of return of 3 % APR from his cash investments then he will need to deposit $309 each month in order to achieve his goal of $20,000 in 5 years.

Stick to your plans, don’t let yourself get knocked off course by minor issues, but also realize that life happens, the unexpected is right around the corner and it may be more financially sound to use your savings to cover unexpected expenses rather than going into debt. You’ll have to make that decision for yourself when the time comes so be flexible and don’t be afraid to change your plans if your goals change. Financial planning is meant to allow you to achieve your goals, not limit you to any particular path; you still have the choice to alter your plans if your situation changes.

Jeremy Woods
Jrwoods47@bellsouth.net