How to make your New Year's financial dream a reality

How to make your New Year’s financial dream a reality

A new year is a time for dreaming big. You probably have one or two specific financial goals that you’d love to realize within the next few years.You may fantasize about buying a car or owning a house. Or you may want to simply save a little more money.

The first step toward turning your financial fantasy into an achievable goal is calculating the dollar value of your dream. If you’re not sure what that figure is, use the following guidelines:

Buying a car.  A new car depreciates in value the minute you drive it off the lot. To avoid being “upside down” on your loan (when you owe more than the car is worth), plan to make a 20% down payment. That means to buy a $25,000 car, you’ll need $5,000 in cash. Even to buy a used car (a 1-5 year-old car averages $13,200, up from $10,500 in 2005), you’ll need about $2,640 for the down payment. Not to mention all the monthly payments that follow. To see how much you need to save each month, use my Save for a Car Calculator.

Buying a home.  Even though we’re still suffering from the effects of the mortgage crisis, now is a good time to buy, since interest rates are low—but only if you can afford it. The national median price for a home was $170,600 as of November 2010. And to qualify for a home loan, you should aim to make a down payment of between 10% and 20% of the total price (the higher the down payment, the better the interest rate on the loan will be); you’ll also need to pay 1% to 5% of the house price to the bank for closing costs (fees for things like inspections, appraisals, credit checks, and legal services). So for a $170,600 home, you would need to save between $18,766 and $42,650. Try my Buy a Home Calculator to customize a monthly savings plan.

Saving more money.  If you’re looking to save for retirement or another specific goal, or simply to bulk up your bank account, try to put away at least 10% of your take-home pay each month. It’s critical to think of your savings as a fixed monthly expense that’s part of your budget, just like car payments or rent. Include in that 10% the money you set aside for both short-term goals and long-term ones (like contributing to an IRA or a 401(k), for instance). And if you can, boost your savings to 15% of your paycheck.

PS: If you’re sharing your New Years financial goals with a partner, be sure to check in—and keep each other in check. Check out this guide to start.

What goal—big or small—would you like to reach?

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